Discover African Minerals Limited Annual report Delineate Design Develop. Deliver. De-risk. Annual report 2013.

Transcription

1 2008 Discover 2009 Delineate 2010 Design 2011 Develop Deliver De-risk 2014 Duplicate

2 is a minerals exploration, development and mining company with significant interests in Sierra Leone. In, we completed Africa s fastest major mine development which saw our worldclass mine commence the ramp up to 20Mtpa across its 200km integrated rail and port infrastructure network. De-risk In the focus has been on stabilising the operation to achieve a sustainable production rate of 20Mtpa by the end of 2014, with cash costs in the range of $30/t at that production level. Also in AML produced 13.1Mt of product and exported 12.1Mt in the year, ending the year with a run rate of 19.2Mtpa. Duplicate After stabilising the operation at 20Mtpa, 2014 will see the operations start the next expansion to 25Mtpa, and to gradually start to replace the DSO with higher value friable haematite concentrate. The increase in production will leverage off the significant infrastructure assets that AML has put in place, and the move to friable haematite concentrate will provide a significantly higher operating margin. Africa s fastest major mine development Lungi Airport To read about our port operations Page 18 Port Loko Port Loko airstrip Pepel Infrastructure lease boundary FREETOWN Lunsar Marampa Mine Pepel Lunsar Tonkolili rail, phase I kilometres Waterloo

3 01 Mission To reward our shareholders through the responsible exploration, development and mining of mineral resources Vision To be the developer and operator of choice for all of our stakeholders Contents Strategic report 02 Highlights 04 Executive Chairman s review 08 Strategic framework 09 Business model 10 Principal risks and uncertainties 14 Key Performance Indicators 20 Business review 26 Financial review 34 Sustainable development Governance 38 Board of Directors 40 Directors report 42 Corporate governance report 45 Directors remuneration report Financial statements 48 Independent auditor s report 49 Consolidated income statement 50 Consolidated statement of comprehensive income 51 Consolidated balance sheet 52 Consolidated statement of cash flows 53 Consolidated statement of changes in equity 54 Notes to the financial statements STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS To read about our rail operations Page 17 To read about our mining and processing Page 16 Mine operation camp Bumbuna Pit fly rock zone Numbara Pit Makeni Farangbaia Forest Reserve Hematite process plant Marampon Pit Simbili Pit AML Mine lease area Raw water dams Tailings storage facility cell 1 Tailings storage facility cell 2 Tailings storage facility option 2 Friable hematite process plant Magnetite process plant Project investigation area

4 02 Highlights African Minerals achieved its export tonnage guidance for the year, with 12.1Mt being shipped, almost trebling the 4.3Mt achieved in. This provides the platform to achieve the 20Mtpa sustainable production run rate while driving C1 cash costs down towards $30/t in 2014, and to duplicate our successes for Phase II expansion. Operations Total production of 13.1Mt of saleable product during (FY : 5.1Mt) Total ore shipped of 12.1Mt (FY : 4.3Mt) Average FOB received price of $78/t (dry) Average freight rate of $21/t Average C1 cash costs of $44/t December exit run rate of 19.2Mtpa 13.1Mt Total production of 13.1Mt of saleable product in Financial Revenue of $869.1m, including $32.5m non-cash release of deferred income (FY : proceeds from ore sales of $286.6m, capitalised) EBITDA of $202.9m (FY : $26.5m loss), with $13.6m Free Cash Flow Operating loss of $69.5m (after special items of $152.1m) (FY : $225.7m loss) A further $49.0m was drawn on the PXF facility in Q4, taking the drawn balance to $250.0m. Group net debt at year end of $473.3m (FY : $20.6m) Consolidated Group debt at year end of $835.7m ($879.0m nominal) Group cash at year end of $362.4m ($304.6m restricted) Settlement of outstanding warranty payments and guarantees with Shandong Iron and Steel Group ( SISG ) $362.4m Group cash at year end

5 03 Corporate Health and Safety Appointment of Bernie Pryor as Chief Executive Officer Appointment of Ian Cockerill as Vice Chairman and Independent Non-Executive Director Appointment of Matthew Hird as Chief Financial Officer Binding MOU signed with Tianjin Materials and Equipment Group Corporation ( Tewoo ) for the sale of a stake in our interest in the project and an equity investment at the AML level in return for cash proceeds at the parent company and a discounted offtake. All Injury Frequency Rate reduced from 2.03 per 200,000 man hours in Q1 to 1.45 injuries per 200,000 man hours at the end of the year Malaria incidences reduced considerably to 1,534 (: 3,567) All injury Frequency Rate reduced from 2.03 in Q1 to 1.45 at the end of the year STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Outlook and Post Period Q production of 5.3Mt of saleable product, and exports of 4.6Mt achieved Standard Bank outstanding corporate level debt facility of $37.5m repaid in Q New Standard Chartered Bank corporate level debt facility of $55.0m signed with $37.5m drawn in Q Ausenco appointed Tonkolili Phase II Front End Engineering Design ( FEED ) engineer 2014 forecast sales guidance 16 18Mt, with C1 cash costs for the full year expected to average $34 36/t. Further cost savings of around $40m targeted over 2014 Focus on the achievement of 20Mtpa sustainable production run rate during 2014, and driving C1 cash costs down towards $30/t at that production level A number of initiatives developed to manage the 2014 wet season and to increase production and export capability in order to achieve a 25Mtpa run rate after 2014 Construction of first Phase II concentrate facility to commence in H2 2014, with the project ramping up thereafter to 25Mtpa. Capital requirements to be met by existing restricted project level cash and new project debt facilities 4.6Mt Exports of 4.6Mt achieved in Q1 2014

6 04 Executive Chairman s review Frank Timis, Executive Chairman We continue to set ourselves some ambitious targets, but the fundamentals remain that African Minerals integrated infrastructure capability ensures we are well positioned to achieve a sustained 20Mtpa run rate during 2014 and, importantly, towards the $30/t C1 cash cost levels, which places us firmly in the lower half of the cash cost curve.

7 05 African Minerals has reached an exciting time in its evolution. The Tonkolili project continues to ramp up towards its 20Mtpa sustainable target production run rate for Phase I, and I am delighted to confirm the Company achieved its export tonnage guidance for the year, with 12.1Mt being shipped, almost trebling the 4.3Mt achieved in. This was an excellent achievement year-on-year, and Q has carried on this trend of continued improvement with production of 5.3Mt of saleable Direct Shipping Ore ( DSO ) product, and exports of 4.6Mt, making AML currently the largest iron ore exporter in West Africa, the second largest iron ore exporter on the African continent, and in the top ten of iron ore exporters globally. The focus now will be to leverage our equipment and management to continue this high level of operational delivery. I am confident that during 2014 we will see the project s production stabilise initially at the 20Mtpa target run rate, with C1 cash costs falling towards $30/t, before continuing our expansion to 25Mtpa and the establishment of our first concentrator to produce around 10Mtpa of a new high grade product which we are embarking on this year. Tonkolili project Throughout the year, we have demonstrated strong volume, production and sales growth capabilities on top of completing project construction in May. The production and sales achievements were not without their challenges; operational issues with each of the contracted transshipping vessels and the splitting of our principal conveyor belt ( CV02 ) at the mine reduced exports from Q2, with Q3 experiencing the largest impact. These issues have since been resolved and the Company took the decision to increase the trans-shipment fleet from three contracted vessels to four to avoid similar interruptions in the future. Furthermore, the CV02 conveyor belt was successfully replaced during the New Year period and plant productivity has since increased up to its nameplate capacity. Without doubt, prioritising operational efficiency and the transshipping remedies resulted in Q4 being one of our strongest quarters to date. Continued optimisation of the mine, plants, rail, port and marine components saw several records achieved in the last quarter of, including 6.3Mt ore mined, an average of over seven train deliveries per day, each of approximately 8,000t and 22 ocean going vessels sailing. Fine-tuning and process optimisation will continue across our operations to build on the success achieved to date. The Market Iron ore prices remained firm over, in response to strong Chinese steel demand growth despite popular expectations that iron ore prices would fall to well under $100/t 62% CFR China basis. In Chinese steel demand grew more strongly than expected, at near 9%, lifting Chinese iron ore imports considerably. After the usual summer lull, the 62% CFR benchmark iron ore prices rallied into the back half of peaking at a healthy $143/t in August and averaging the year at $135/t. The iron ore market has faced considerable headwinds since the beginning of The recent decline in spot pricing has broadly been attributed to weak economic global growth signals, weak steel fundamentals, ongoing destocking by mills, elevated iron ore port inventories, tightness of Chinese credit, and Chinese environmental regulations. At the time of reporting we have seen iron ore prices retreat, with the benchmark 62% iron ore price falling from $135/t on 1 January 2014 to a low of under $92/t on 30 May Chinese iron ore inventory at ports has risen from a recent low of 70Mt to around 105Mt. However, the latest data of steel mill iron inventory shows levels rapidly declining, suggesting a pick-up in steel production rates, which will lead to destocking of iron ore inventories. This would therefore suggest the medium-term outlook being a recovery in spot prices from the current low levels. The market for our low silica DSO product remains strong, and all tonnage up to 2017 is fully committed. A significant differentiating factor for AML remains its attractive low cost operations which at our targeted production levels are designed to remain cash positive 1 at a benchmark 62% iron ore price at $90/t, even during this DSO phase, and it is likely that margins will remain attractive for the Company, even in the face of lower pricing in the short term. Corporate governance African Minerals continued to make progress in terms of its corporate governance as evidenced by the appointment of Ian Cockerill, who further strengthened the Board as Vice Chairman and Independent Non-Executive Director. I am also pleased to welcome Bernie Pryor, previously a Non-Executive Director of the Company, who has accepted the role of Chief Executive Officer, and Matthew Hird as Chief Financial Officer. Sustainability and community As the largest contributor to Sierra Leone s GDP and the country s largest employer, we are committed to aligning our operations and strategies towards the ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption as set out in the UN Global Compact. The local communities that live in the surrounding area to our operations are extremely important to us, which is why last year, we invested $3.6m in 22 local community projects. We have invested in excess of $2bn in the country to date and are very proud that our investment in people and training means that over 80% of our workforce is made up of Sierra Leonean nationals. Furthermore, we are pleased that our direct and indirect investment has contributed to Sierra Leone becoming the second fastest growing global economy by GDP. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 1 Prior to expansion capital and principal debt, subject to normalised relationship between pricing of 58% and 62% iron ore indices.

8 06 Executive Chairman s review continued Outlook We continue to set ourselves some ambitious targets, but the fundamentals remain that African Minerals integrated infrastructure capability ensures we are well positioned to initially achieve a sustained 20Mtpa run rate during 2014 and, importantly, at towards the $30/t C1 cash cost level, which places us firmly in the lower half of the cash cost curve. With the fourth trans-shipper arriving on site in December, and the CV02 belt being replaced early in January, it was only recently that the full mine plant rail port marine system has been pushed to design. Very pleasingly, even after more than a week of shutdown in January, the success in December has been repeated into 2014 in both February and March, with both of those months showing better than target production, and 19 ocean-going vessels sailing in 59 days, demonstrating close to a 20Mtpa capability over that period. Despite the onset of the wet season, this strong performance in Q has continued into Q2, which forms the basis of our export guidance of 16-18Mt in 2014, with annual average C1 cash costs forecast to be in the mid-thirties. However, it will not be without its challenges. We will now strive to maintain this nameplate production level through the country s intense wet season, and we have developed several strategies to assist our management to achieve this goal. These will include the establishment of desliming circuits to our production facilities at the mine, which will create free draining fine and intermediate products, and the commissioning of a fines polymerisation circuit at the port, which will allow product at above normal moisture levels to be shipped safely. These interventions will allow us to ship standard lump, intermediate and fines products all year round, allowing us to suspend production of discounted All in 32 ("A32") material, and giving us much better revenue capture in our DSO phase. The coming year will also see the commencement of our expansion project which will, from 2016, see the Company move from producing only DSO to producing an increased tonnage including a high value friable haematite concentrate which is key to sustaining and growing the production profile at Tonkolili. Following certain capital works in 2014, including the construction of plant 1G and to address port and rail capacities, we are targeting total annual production of at least 25Mtpa, initially of DSO product, which will further reduce operating costs. The achievements to date and our aforementioned operational goals for the near future are the two main drivers that attracted Tewoo to sign a major investment proposal at the end of September. I look forward to welcoming them as a shareholder subject to completion of due diligence, documentation and negotiation of the transaction. African Minerals has come a long way in a very short space of time. Hitting the 20Mtpa run rate over several periods in and early in 2014 endorses our view that we have the right platform to continue to grow and realise our objectives, and not only become the new leader in West African iron ore, but also to maintain our position as a top ten global iron ore producer in the coming years. I am grateful for the support shown by our investors, the Sierra Leone Government, and all of our workforce who have allowed African Minerals to make its vision a reality. The Board and I look forward to a successful 2014, as African Minerals continues to grow and generate significant cash flows, in tandem with a focus on efficient capital investment and maximising returns for shareholders. To that end we expect to communicate a policy regarding dividends and returning value to shareholders when we discuss our financial results for Frank Timis Executive Chairman

9 07 Why invest? World class iron ore resource The Tonkolili Iron Ore Deposit is one of the largest magnetite deposits in the world with a resource of over 12Bnt. The mine is expected to last well over 60 years. AML s involvement began with the grass roots exploration of the deposit, continued to resource delineation, mine planning and finally development of a large scale 20Mtpa capacity mine, rail and port. Strategic partnerships In March, AML completed a landmark equity $1.5bn investment transaction with SISG, one of the world s largest iron and steel groups. Strong project economics AML s Tonkolili operation is a low cost operation. The proximity to port and the nature of the deposit means very little processing for Phase 1 product. AML expects to bring its DSO product to market at c$30/t. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Financial strength AML s balance sheet allows the Company to invest in capital expansion projects at low costs. With $362.4m cash at the end of, offtake contracts that guarantee customers for all product to 2017, and good relationships with a number of lending banks, AML is able to leverage its resources to strive for the lowest cost of capital for its projects. Quality management team To complement AML s management team several appointments have been made, including Bernie Pryor in the role of Chief Executive Officer and Matthew Hird as Chief Financial Officer.

10 08 Strategic framework Strategy AML has developed a framework for its Mission, Vision and Values to help achieve its strategy to become the premier independent mining company, providing superior returns to shareholders. Volume growth AML aims to position itself as a top ten global iron ore producer and thereby becoming an attractive alternative source of supply for customers outside of the major global producers. Cost efficiency While the past year has seen volatility and depressed iron ore prices the longer-term supply/demand fundamentals remain attractive. In periods of lower prices, AML aims to generate positive cash flow as a result of being a low cost producer. Revenue enhancement AML s revenue enhancement strategy is designed to continuously evaluate its business to maximise the opportunity from its asset base. This includes a staged approach to mining its significant ore body, cost efficiency exercises and negotiating appropriate offtake contracts for its product. Sustainability AML seeks to engage and enhance meaningful relationships with parties in Sierra Leone to create the next generation of good practice for sustainability in mining in Sierra Leone. AML aims to develop sustainability programmes in accordance with globally recognised standards of good sustainability practice. AML owns one of the largest iron ore deposits in the world. With over 12Bnt, the Company anticipates a mine life of 60+ years. AML s phase I will see annual production reach 20Mtpa rising to 25Mtpa in phase II. : Average C1 cash costs of $44/t. 2014: C1 cash costs for the full year expected to average $34 36/t. Further cost savings of around $40m targeted over Construction of first Phase II concentrate facility to commence in H with the project ramping up thereafter to 25Mtpa. Higher value concentrate products to come onstream from Capital requirements to be met by existing restricted project level cash and new project debt facilities. AML was involved with 22 community projects in. $3.6m invested in via our sustainability programmes.

11 09 AML is focused on identifying commercial opportunities from the exploration, development and operation of viable ore bodies. There is a disciplined execution of investment capital, ensuring rapid development within strict budgetary controls. Mining activities generate significant value, through the optimisation of processes, production increases and mine life extension. Our investment decisions are aligned with market trends and the requirements of our partners. Sound governance and financial discipline along with sustainable development are long-term value drivers for the organisation. Business model Financial Discipline Identify Market Sound Governance Invest Mine STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Differentiators and value creation AML appreciates the direct correlation between good corporate governance and the creation of value for shareholders. Growing, maintaining and safeguarding the investments of its strategic partners in China and international institutional supporters and stakeholders both in Sierra Leone and around the world are of great significance as AML works to continually and measurably improve its standards of oversight and transparency. Competitive advantage AML has successfully completed Africa s fastest major mine development, moving from greenfield exploration to large scale production in five years alone. Tonkolili represents a platform for the Company to not only achieve 25Mtpa in Phase II, but also a unique base from which to generate Free Cash Flow and longer-term to pursue investment opportunities across Africa. For more info on governance see page 42. Governance In AML has improved the overall calibre of our Board and more closely aligned its composition to the Corporate Governance Code of the Financial Reporting Council. For more info on KPIs see page 14. Key performance indicators In, AML has redefined its KPIs to reflect our transition to an operating business from one whose main project was under construction. For more info on remuneration see page 45. Remuneration AML s Directors' remuneration is linked to how the Company performs against KPIs. AML has already enacted cost savings of approximately $50m in developing our budget for 2014.

12 10 Principal risks and uncertainties Risk Impact Mitigation Change External Risks Changes in iron ore price are strongly affected by supply and world economic factors, particularly China. Community relations deteriorate and affect operations and project development. Regulations, standards and stakeholder expectations in respect of health, safety, environment and community increase. The Group is exposed to political and regulatory developments in Sierra Leone. The impact of any developments could be beyond our control. Key Customers Breakdown in relationship with SISG or China Railway Materials Commercial Corporation ( CRM ) or that SISG or CRM encounter economic difficulty. Financial Risks Attainment on schedule of sustained production and cost targets. Fluctuation in exchange rates may impact costs and financial results. The Company has various debt facilities in place the serviceability of which is dependent on generation of Free Cash Flow. As a single commodity producer, changes can impact negatively or positively on the Group. Deterioration may have a negative effect on the Group s operations and/ or projects. Increasing expectations have adverse effects on the Group's operations and/ or projects. Possible impacts include, amongst others: political unrest, changes to royalty or tax rates and the withdrawal or variation of permits. SISG is one of the Group s major customers for iron ore and has the right to elect to take 25% of standard production at benchmark prices and in 2014 a discounted offtake tonnage of 6.5Mt at discounted prices. CRM is one of the Group's major customers for iron ore and has an offtake of 5Mtpa. Any change in relationship with SISG or CRM or any adverse change in economic conditions within SISG or CRM could materially affect the Group s financial position. Cash costs are unlikely to fall to $30/t unless production stabilises at 20Mt or more. Fluctuations in exchange rates between USD, GBP and Sierra Leonean Leone may adversely impact costs. In the event of a sustained period of reduced margins, or rising costs, Free Cash Flow may be affected to the point that our ability to repay these facilities becomes compromised. We are actively working to reducing our operating costs to approximately $30 per tonne to reduce negative impact. The Group is continually working with national and local governments and other organisations to improve communications with all stakeholders. The Group is striving, in conjunction with all stakeholders, to ensure our operations are developed in line with internationally accepted practices. The Group is actively involved with the local communities where it operates in order to maintain its social licence to operate. The Group also maintains a regular, transparent and open engagement with the Government and regulatory agencies of Sierra Leone and other interested parties. SISG owns 25% of the Tonkolili Project and is represented on both the Project and the Group Boards. CRM holds an equity interest of 12.5% in the Company, and is represented on the Group Board. The project has operated in Q at above targeted run rates with 5.3Mt produced in the quarter. Wherever possible, contracts and costs are negotiated in USD. The Group continues to review financial arrangements to strengthen its balance sheet.

13 11 African Minerals is committed to the identification, assessment and management of risk throughout its business activities. Whilst risk in the mining industry is inherent and ever changing, our goal is to work towards minimising those risks through an effective risk management strategy and programme. Risk Impact Mitigation Change Reserves and Resource Risk Changes in factors used for the estimation of Reserves and Resources results in the need to restate those estimates. Operational Risks Problems with the single railway track restricts ore shipments. Depending on changes, this impact could have a materially positive or negative long-term effect on the Group. Reduction in number of trains or speed may have a negative impact on export sales. The Group's policy is to apply the standards set out in the Australasian Code for Reporting of Mineral Resources and Ore Reserves and uses experienced independent external consultants to review all exploration work undertaken and to produce resource and reserve estimates. A number of enhancements and remedial work on the rail network, principally regarding bridge strengthening and curve flattening is expected to allow higher productivity levels to be achieved when completed by the end of Q STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Inability to meet transportable moisture limit ( TML ) restricts iron ore shipments. Increase in operating costs such as fuel and labour. Problems with the transshippers. Availability and retention of key personnel. Inability to procure critical equipment or materials. Availability of experienced contractors. High TML's could impact export of fines. Fuel and labour costs are major components of the total cost of production. Any change could have an adverse effect on operating costs. Loss or failure of any of our transshipping vessels could reduce our iron ore shipments. Lack of and/or retention of key personnel in engineering, finance and technical may adversely affect operations and project development. The inability to procure critical equipment or materials or interruption in supply may lead to production delays and thereby impact cash flow and/or profitability. The Group is heavily reliant on a limited number of experienced contractors both in operations and projects. Problems with any of them may have a negative material impact on operations or project developments. A number of interventions are in the process of being implemented, notably the establishment of desliming circuits, and the commissioning of a polymer dosing unit, that will result in fines material that has a lower natural moisture content, and will allow higher moisture content materials to be shipped safely. Phase 1 has relatively low power consumption and a strategy is being implemented to reduce fuel costs in the interim before Phase II commences in Design of Phase II will include measures to reduce fuel costs per tonne of ore. A fourth trans-shipper has been contracted to provide additional capacity. The Group s remuneration policy is to regularly review remuneration levels and other benefits in order to attract, retain and incentivise key personnel of the highest quality, having regard to their experience and the nature, complexity and location of their work. Levels of pay for African Minerals employees are significantly higher than the national average for Sierra Leone. Individual remuneration for executives and senior management is linked to the Group s long-term performance. The Group is reviewing its critical items and working with suppliers to ensure in-country stocks reflect both risk and delivery times. The Group routinely reviews all the main contracting companies involved in its business from an operational, commercial and compliance basis. key Improving No change Deteriorating

14 12 Principal risks and uncertainties continued Risk Impact Mitigation Change Environmental Risks Non-compliance with environmental regulations. Failure to maintain highest levels of environmental management. Health and Safety Risks Failure to maintain highest levels of health and safety management. Projects Failure to effectively manage planned projects may affect project costs and/or schedules and operational costs. The test work being carried out on the friable haematite ore body may prove it cannot be economically exploited. Insurance Some risks are either not insured or are uninsurable. Corporate governance The Group s ability to implement its business strategy is dependent on the availability of directors with engineering, mining and financial expertise. Non-compliance could negatively impact community, local and national governments and wider stakeholders. Potential harm to persons working at our sites or the surrounding communities from environmental incidents such as uncontrolled releases from tailings. Potential harm to persons working at our sites or the surrounding communities. Negative impact on project schedule or project costs or a reduction in planned output. To access the underlying magnetite ore body, the friable haematite may have to be removed as waste. We may suffer a financial loss if one of these events occurs. Loss or diminution in the services of non executive directors could have an adverse effect on the Group s business, financial condition, results of operations and prospects. During Q3 the SL Environmental Protection Authority ( EPA ) identified a number of issues which they perceived as non-compliances against AML s environmental license conditions. AML subsequently worked closely with the EPA to develop action plans to address these noncompliances. The EPA was satisfied with AML s approach and subsequently issued AML with a renewed Environmental Impact Assessment ("EIA") License valid until 25 July Another large tailings management facility ( TMF ) has been designed and constructed and is due to be operational in early A monitoring system for the new TMF has been developed and will be implemented once the facility is operational. The development and operation of large-scale, complex mining operations such as the Tonkolili project is inherently risky. Safety regulations in Sierra Leone are developing and adopting global best practice standards remains challenging. The Group has an experienced management team and enhances this team with suitable external consulting companies and independent experts as required. A pilot plant has been constructed to evaluate the process and an experienced contractor has been appointed to develop the front end engineering design. Our risk management and insurance programmes are periodically reviewed by Senior Management, the recently appointed AML Risk and Insurance Manager and our insurance advisor and reported to the Audit Committee of the Board. The Group has appointed a number of additional Independent Non-Executive Directors and intends to appoint additional Directors to obtain a majority of Independent Directors.

15 13 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Trans-shipping The Company has increased its fleet of trans-shipping vessels from three to four to increase operational flexibility and to achieve our increased target export rates.

16 14 Key performance indicators During, the key performance indicators of the Group have been redefined reflecting the transition to an operating business from a business whose main project was under construction. Export volume (mt) C1 production cash cost per tonne ($ per tonne) Why 2011 is it relevant The Group seeks to optimise output from the Tonkolili iron ore project in a value creative manner for shareholders. Measuring export volume indicates the Group s ability in achieving this objective. This KPI should be considered alongside EBITDA and Free Cash Flow in order to give a holistic view of performance. How is it calculated Number of wet tonnes of ore shipped in the year Not reported Why 2011 is it relevant The Group endeavours to maximise operating profit whilst minimising production costs. This measure highlights how well the Group manages its production costs on a per tonne basis. How is it calculated Production cash costs (excluding depreciation and amortisation) divided by wet tonnes shipped. This is further explained in Note 5 of the financial statements. All-in cash cost per tonne ($ per tonne) EBITDA ($ million) Not reported Why 2011 is it relevant The Group targets operating efficiency across all aspects of the business. This measure highlights the ability to manage costs across end-to-end operations. How is it calculated Cash costs of production (mining, rail and port) plus selling, general and administration expenses and sustaining capital expenditure divided by wet tonnes shipped. This is further explained in Note 5 of the financial statements. (26.5) Why 2011 is it relevant The Group believes EBITDA is a useful measure of the underlying profitability of the Group and is a proxy for cash earnings from current trading performance. How is it calculated Profit before tax, finance costs, depreciation, impairment, amortisation and special items. This is further explained in Note 5 of the financial statements.

17 15 Free Cash Flow ($ million) Not reported Why 2011 is it relevant The Group aims to maximise shareholder return and to invest in sustainable growth and development of the business. Free Cash Flow is an indicator of available cash to reduce net debt, to grow the business through reinvestment or to make returns to shareholders. Net (funds)/debt ($ million) 00.0 How is it calculated Net cash flow from operating activities less sustaining capital expenditure and interest paid Earnings per share based on Underlying Profit (cents per share) (24.65) (20.38) 00.0 Why 2011 is it relevant The Group s primary strategic objective is to maximise sustainable returns to shareholders. Earnings (or loss) per share ( EPS ) shows the level of net profit generated and measures the return to the Group s equity shareholders, derived from the underlying trading performance in a period. How is it calculated Underlying profit after tax (excluding special items and revaluation of the SISG put option) divided by the weighted average number of shares in issue. This is further explained in Note 13 of the financial statements. All Injury Frequency Rate STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS (20.6) Why 2011 is it relevant The Group seeks to maintain a robust balance sheet through the commodity cycle in order to safeguard and support the business as a going concern and to maximise returns to shareholders. The net debt measurement is an indicator of how well the balance sheet and capital structure are being managed. How is it calculated Net borrowings after deducting cash and cash equivalents. This is further explained in Note 5 of the financial statements * Why 2011 is it relevant The Group has an uncompromising focus on pursuing zero harm to its employees. The All Injury Frequency Rate ( AIFR ) highlights the performance of management in relation to safety. The AIFR is considered more stringent than the Lost Time Injury Frequency Rate ( LTIFR ) that it replaces, and the rise from the equivalent measure of LTIFR converted to AIFR of 0.74 in is attributed to be as a result of better data capture and increasingly open reporting of accidents. How is it calculated Number of medical treatment injuries per 200,000 man hours. Community spend ($ million) Not reported Why 2011 is it relevant When operating in a developing country as such Sierra Leone, the Group has a responsibility to make community contributions in order to maintain a strong social commitment to our employees and the communities around us. How is it calculated Total investment from operating and capital expenditure in the community per annum. The Director s remuneration is linked to how the Company performs against these key metrics. To read more about this go to page 45.

18 16 Mining and processing 16.2Mt DSO mined in 13.1Mt Total DSO processed in 19.2Mt exit run rate The Tonkolili Mine is a world class mining operation that focuses on sustainable mining and development of the iron ore deposit. A team of professionals from various disciplines ensures that industry best standards are upheld in the running of the mine. Highlights In, the Company focused on constructing and completing its large wet process plant, as well as associated tailings and water dam facilities. From H2 2014, three processing plants will be capable of producing in excess of 20Mtpa of saleable product.

19 17 8,000t per train 7 trains Consists each of 4 locomotives and 112 wagons Rail Tonkolili's proximity to the coast allows AML to transport the iron ore a relatively short distance, generating significant cost efficiencies compared to other iron ore producers. AML aims for rail operations to be timely, reliable and consistent. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Highlights In, the Company made significant improvements to the train load-out area, Pepel loop, bridges and passing points. Cycle times have been shortened to under 20 hours, allowing nine train deliveries per day using seven train sets.

20 18 Port 12.1Mt Exported in 4 Vessels in Trans-shipping Fleet We are successfully exporting iron ore to key global markets, thus setting a precedent in West Africa as it becomes a region of focus and growth in future iron ore production. Highlights Pepel Port s capacity was significantly expanded in April, with the commissioning of the large 6,000 tonnes per hour Number 2 dumper. A second shiploader belt was installed on the existing jetty doubling loading capacity.

21 19 c.80% Of people working on the project as at 31 December were Sierra Leone nationals Sustainability Through responsible mining practices and sustainable local partnerships, AML s vision is to be a positive force of economic and social change in Sierra Leone. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Highlights AML was proud to be involved in 22 community projects across our footprint in. With a strong emphasis on education, training, communities and local level economic investment.

22 20 Business review AML implemented numerous initiatives aimed at improving operational efficiency in. Through wet season strategies, environmental engagement, technical innovations and cost saving initiatives, AML remains committed to rigorously reviewing and developing its mining, processing, railway, port and maritime operations. Bernard Pryor Chief Executive Officer Health and safety The Company has adopted the international standard for reporting against an All Injury Frequency Rate per 200,000 man hours, from 1 January. On a comparative basis, but not including minor first aid incidents, the equivalent rate for was The rolling 12 month All Injury Frequency Rate for was 1.45 injuries per 200,000 man hours, with the increase attributed to be as a result of better data capture and increasingly open reporting of incidents. The health of all AML employees is a priority for our Group and the reduction in malaria cases at our industrial sites, camps and in our neighboring communities was a key focus for us in. We embarked on a major Group wide initiative to eliminate mosquito breeding habitats, improving preventative measures against contagion and a broader education and support programme. We are pleased to report that the Malaria Incident Frequency Rate has dropped from 25.1 incidences per 200,000 man hours, when the scheme was initiated in April, to 11.6 at the end of the year, and that the number of cases reduced by more than 50% year-on-year from 3,567 in to 1,534 in and a further reduction at the start of Q with only 89 recorded cases in the quarter. The Company has implemented several strategies and precautions aimed at protecting and safeguarding its workforce from the effects of the Ebola outbreak that is currently affecting the region. Overall general health, cleanliness of surroundings, control of movement, careful monitoring and ongoing employee and community education are cornerstones of these interventions and precautions. The operations of AML remain unaffected. Market environment Our long life resource and increasing production capacity, in combination with our attractive product, are establishing the Company as a long-term and stable iron ore supplier of choice, particularly in the Chinese market. The market for our product, be it fines, lump, blend or A32, remains strong. The low silica content of our ore makes it an attractive and sought after blending component. African Minerals currently exports all of its production to China and receives all of its revenues in US dollars. Our market strategy has been to commit 100% of our Phase I production to long-term offtake contracts, predominantly with stakeholder partners. This provides us with confidence that we will be able to continue to sell our product through the full economic commodity cycle. In, all of the Project s sales were made under fully committed offtake agreements to SISG and CRM and other contracted customers. Market analysts expect an 8% increase in global iron ore supply in 2014, mostly due in the second half of the year, following expansions by several of the five largest iron ore miners. Although Chinese steel demand is expected to grow at a healthy rate of around 5% over that period, it is possible that iron ore supply will briefly outpace demand in the near term. Despite this, the cost curve should continue to support prices above $100/t 62% CFR China, with anything lower expected to impact production from higher cost miners in Europe, eastern Canada and within China as well. Latest Chinese data suggest average ore grades of approximately 20% Fe, resulting in high cost domestic production once mining, concentrating and transport costs are taken into account.

23 21 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 4.5Mt Exports in Q1 2014, makes Tonkolili the largest exporter of iron ore in West Africa.

24 22 Business review continued Netback prices to miners should remain firm with shipping rates low. Despite an apparent oversupply of ships, latest market data show that over 300 Cape Size and larger vessels are on order to 2017, which should ensure the ability to secure low shipping costs to the Asian markets. Production Mine and plant The Company s wet season product strategy performed well with Group A cargo (cargoes which are capable of liquefaction in transit) materials (fines and A32) being stockpiled for the dry season and Group C cargo (neither capable of liquefaction nor chemically hazardous) material (lump and a blend of lump and A32) being loaded in the wet season. This strategy and measures adopted to manage seasonal impact based on prior experience resulted in no significant degradation of mining, processing, railing, materials handling or shipping during that time. Production in H1 showed strong sequential improvement, quarter on quarter, as the ramp up continued. In April, a large second wagon dumper was commissioned in order to address a loading bottleneck. This resulted in a significant increased throughput capability at the port. The Company moved 8.7Mt of material in H1, of which 7.4Mt was DSO for a low internal stripping ratio of 0.2:1. The balance was a combination of low grade ore and friable haematite which will be processed by the friable haematite pilot plant as well as being stockpiled for Phase II. Good levels of mining movement continued into H2, although access to the higher pits in Q3 was reduced as the wet season cloud base impacted visibility. H2 saw material moved increase to 11.0Mt, of which 8.9Mt was DSO for a low internal stripping ratio of 0.24:1. The improvement on H1 is primarily a result of ore movement associated with stockpiling of friable haematite for Phase II, which in turn exposed more DSO at the lower pits combined with a record 6.3Mt moved in Q4. By the close of, friable haematite moved and stockpiled during Phase I and available as early feed material for Phase II stood at 6.8Mt. During the period reported, our plants processed a combined 16.0Mt of ore, generating 13.1Mt of product for a yield of 82%, at an average grade of 57.7% Fe, compared to 57.5% Fe headfeed grade in. In July, the conversion of the 1D plant resulted in all of the process plants producing standard washed and screened lump and fines DSO product. 1D retains the capability of producing A32 to create a lump blend, should it be required in future as part of the Company s shipping strategy. In Q2, the CV02 conveyor belt experienced an entire length split which reduced productivity until the end of the year. Since exports still relied on lump production during the wet season, it was not possible to replace the belt until the New Year period. Fortunately, the Company was able to process good volumes under the circumstances, as a result of careful operation of the belt. The conveyor belt was successfully replaced during the New Year period and plant productivity has since increased to beyond its nameplate capacity. With 12.1Mt of material exported, stockpiles of DSO product at the mine at the end of the year stood at 1.8Mt. Q1 Q2 Q3 Q4 MINING Tonnes DSO Ore Mined Mt Tonnes friable haematite Ore Mined Mt Grade DSO Ore Mined % Total Mined Mt PROCESSING Tonnes DSO Ore Treated Mt Grade DSO Ore Treated % Total DSO Produced Mt Rail A total of 12.5Mt was transported by rail from the mine to the port in. The railway continues to operate without incident. AML has a fleet of 34 locomotives and 1,048 wagons. Trains currently consist of four locomotives and 112 wagons, delivering approximately 8,000t per trip. A major bottleneck to achieving the 20Mtpa target run rate had been the commissioning of the second large wagon dumper. The 6,000tph dumper number two was completed on 29 April, supplementing the 3,000tph dumper number one, which had previously constrained the operation to a maximum of between 12 and 14Mtpa. Rail productivity continues to improve. We now operate seven trains consistently, achieving eight train deliveries per day, each of 8,000t. Remedial work is continuing, principally regarding bridge strengthening and curve flattening, and is expected to allow higher productivity levels to be achieved from Q3, Exports Exports for the year of 12.1Mt at an average grade of 58.0% were achieved with 70 OGVs sailing, with an average cargo size of approximately 173,000t per vessel, which included nine vessels sailing in December; a record calendar month performance for from the integrated operations. Operational issues with the Trans-shipping Vessel ( TSV ) fleet, resulted in a reduction from three TSVs available to an average of less than two from June to September. The fleet size was increased to four vessels, to provide for redundancy, with the arrival of the MV Argosy in December.

25 23 Sales During the year, Project sales were made entirely to our offtake partners. Of the 12.1Mt exported, 39% or 4.7Mt related to delivery into the discounted offtake tonnages to AML s strategic partner, SISG. The investor discount for these tonnes varied between 7.5% and 12.5% through the year. Through the year, the product shipped was predominantly A32 material and lump blend, which accounted for 71% of our shipments in. The A32 and Blend products carry an additional reprocessing charge of between $3 and $5 per tonne. 70 Number of Ocean Going Vessels loaded and shipped in Operating costs Operating C1 cash costs for the year averaged $44/t. This figure is materially influenced by the level of sales volumes. Improvement through the year reflects increasing sales volumes but also various cost saving initiatives including the reduction of corporate and services headcount by 40%, renegotiation of supplier contracts and improved procurement processes. AML is committed to reducing costs at both the operational and corporate level. In developing our budget for 2014, we have already enacted cost savings of approximately $50m and, although not yet included in our budgets, we are also targeting up to $40m annualised further cost savings by the end of In March 2014, with ten vessels sailing and 1.8Mt of ore exported in the month (the last month currently reported as part of our Q production update), we recorded C1 cash costs of under $34/t. This does not yet reflect the effects of some of our budgeted interventions, and keeps us demonstrably on track for hitting our cash cost target of around $30/t with a sustainable production of 20Mtpa. Capital costs Expenditure on Phase I capital costs amounted to approximately $120m, principally for the completion of construction activities. Following completion of Phase I in May, capital costs on Phase II amounted to approximately $51m, principally for early design, evaluation and engineering for the Phase II expansion into the concentrate phase of production. An additional $50m was incurred in sustaining capital associated with the plant 1B tailings dam, accommodation facilities and the addition of a wet processing circuit to plant 1D. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS For the year, the average Platts 58% price was $119 per tonne, with the monthly average peaking at $122/t in February and falling to a low of $101/t in June. Due to timing differences of shipping, our average invoiced Platts 58% price was $118/t. Similarly, the freight rate for shipping our product averaged $21/t, varying from a high of $28/t in October to a low of $18/t in May. With adjustments for moisture and deleterious elements principally alumina the realised price for our product (ie FOB) averaged $78/t, $41/t below the headline CFR Platts 58% China price. This excludes adjustments from final pricing at year end, and the release of non-cash deferred income from the SISG discounted offtake agreement tonnage. Q1 Q2 Q3 Q4 EXPORT Total Exported (Wet) Mt Lump Mt Fines Mt A32 Mt Blend Mt Grade % Moisture % Total Exported (Dry) Mt Number of Vessels # REVENUES Period Spot 58% $/t Freight Rate $/t Achieved FOB (dry) $/t Corporate level debt Post period, after a review of its corporate debt facilities, AML took the decision to retire the remaining $37.5m corporate level debt owing to Standard Bank, which was repaid during Q In a separate transaction, AML concluded an agreement for a new $55.0m corporate level debt facility arranged by Standard Chartered Bank. This agreement was executed in Q1 2014, with $37.5m drawn also in Q Operating Company debt During Q4, AML s operating companies drew the remaining $49m of the $250m PXF facility. Standard Bank has now additionally syndicated that loan to a consortium including Standard Chartered Bank, Citi, British Arab Commercial Bank, Ecowas Bank for Investment and Development, and BMCE Bank International. The successful syndication, and the widening of the lender group, is positive for supporting further industrial growth in Sierra Leone. The Group is currently seeking to replace this debt with longer-term funding in order to more closely align the maturity profile of the project companies debt with their revenue generation profile. Whilst the Directors are confident this refinancing exercise will be successful, until it is complete, the Group faces a material uncertainty regarding its ability to service its debt in the short term. This is discussed further in Note 3 to the consolidated financial statements. The operating companies also carry equipment financing facilities, which at the end of stood at $135m (nominal).

26 24 Business review continued Balance sheet For the year ended 31 December, the Group had drawn principal debt of $822.8m and had cash of $362.4m. However, post period, following the replacement of the Standard Bank facility with a larger Standard Chartered Bank facility the nominal external debt facilities stood as follows: External Debt Debt facility Drawn Convertible Bond Standard Chartered Bank facility Vendor Finance PXF Total Debt At the end of the year, $304.6m of the $362.4m cash on the balance sheet remained restricted for use in the expansion of the Tonkolili Project. Project update Tewoo transaction On 26 September, AML announced the signing of a binding MOU with Tewoo for the sale of 10% of the underlying Project companies from AML to Tewoo, and for AML to make a private placement to Tewoo for a post-issue holding of 10% of AML, for total proceeds of $990m and a discounted offtake agreement. Part of the due diligence and approval process was the receipt of two trial shipments, both of which were delivered with the product meeting Tewoo s expectations in Q4. Due diligence by Tewoo is continuing, as well as negotiations regarding outstanding commercial terms of the transaction, as previously reported. Shandong offtake On 20 December, SISG and AML agreed to amend the discounted offtake entitlement whereby the amended off-take is now directly linked to the project s annual production capacity. Under the amended terms, deliveries will be 6.5Mtpa in 2014, increasing to 7Mtpa at a project capacity of 25Mtpa and then increasing pro rata up to 10Mtpa at a nominal project capacity of 35Mtpa. The amendment included a decision to optimise the Tonkolili Project s near term expansion plans rather than proceeding immediately to production of 35Mtpa. Additional DSO processing plant 1G In order to fully utilise near term expanded infrastructure capability (see below), the Project will also expand its DSO processing capacity. The new 9Mtpa A32 1G plant is being constructed for commissioning and ramp up during Q Together with the 10 12Mtpa 1B plant, and the 6 8Mtpa 1D plant, this increases processing capability to above 25Mtpa. Infrastructure capacity The move from producing DSO to producing a high value concentrate remains a key strategy in sustaining and growing AML s production profile at Tonkolili. As part of this expansion strategy, AML together with its project partner, SISG, commissioned various experts to review the capacity of the existing rail, port and marine infrastructure, and identified the most cost effective approach to increase output to optimum capacity. Based on their findings the Company is confident that the existing facilities will be able to support an increased production level of 25Mtpa with relatively little capital investment. Phase II expansion is on track to commence during the Q dry season with first production expected from Together with the additional processing capability of 1G, this will allow the Tonkolili project to initially achieve its medium-term export capacity at a low capital cost, with friable haematite processing capability being brought online in stages as DSO operations are wound down over time. This strategy retains optionality for further expansion while minimising immediate capital requirements and improving free cash flow. Technological innovations The Company is in the latter stages of evaluating and designing a number of interventions with regards to management of materials handling in the wet season, including such elements as stockpile covers and dewatering circuits. Two notable interventions, which are currently being implemented, are discussed briefly below: Intermediate product AML is implementing desliming and rescreening circuits to its existing processing plants. This modification will reduce the amount of clays and super-fine silt in the fines product, allowing a more free draining product with lower moisture level. The process will also create an intermediate product of +2mm fines, that is expected to be classified as a Group C cargo, and safely shippable all year round. This strategy will also include the recovery of additional fines material from the processing plants, leading to increased recovery, lower unit costs and higher resource usage. Polymer test work While the Company s wet season strategy of building up Group C cargoes while exporting Group A cargoes in the dry season to allow exclusively Group C cargoes to be shipped in the wet season, proved effective in, AML continues to seek further optionality by way of the use of technological innovations. Specifically, the Company has been testing the use of polymers during the wet season. AML is pleased with the performance to date of its polymer tests, and is moving to implement a polymer dosing circuit by mid-year 2014, for use during the wet season. The addition of polymer increases the Flow Moisture Point of fines material, allowing the Transportable Moisture Limit to be raised, and thus making it possible to export fines material longer into the wet season, significantly simplifying wet season planning. This approach has been successful elsewhere.

27 25 Corporate The appointments in July, of Ian Cockerill as independent Director and Vice Chairman, and Roger Liddell as Senior Independent Director, both improve the overall calibre of our Board and more closely align its composition to the Corporate Governance Code of the Financial Reporting Council. Our leadership team was also changed in August, with the appointment of Bernie Pryor as Chief Executive Officer, and shortly thereafter Matthew Hird as Chief Financial Officer in October. African Minerals Board Nominations Committee continues to assess other candidates with a view to establishing a Board with a majority of independent Directors. As previously discussed, AML is focused on deploying its cash to optimise shareholder returns, alongside maintaining adequate liquidity for its growth plans. Relationships with our partners, SISG and CRM, continue to develop with mutual benefit and, to that end, the Project Board s commitment remains absolute to paying as much of the Free Cash Flow from Tonkolili as possible to the project s shareholders, AML and SISG, with due consideration of future project-level cash requirements. The AML Board expects to develop its own policy regarding dividends and return of value to shareholders concurrent with the release of 2014 results. 25Mtpa exit infrastructure capability STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Community and sustainable development AML aims to bring about sustainable development within its host communities in three ways: Investing in education. Promoting small scale economic growth. Improving access to healthcare. Our community engagement initiatives include the upgrading of medical facilities, schooling programmes, improved social services, industrial and agricultural support programmes, cultural and sporting projects, amongst many others across the 200km+ footprint of our activities. Consideration of the environmental impact of our mining, processing, rail, port and trans-shipping operations is an important part in our planning, development and operating activities. The Group is committed to operating responsibly and sustainably. To read more on sustainable development go to page 34.

28 26 Financial review Export volumes of 12.1 Mt in have led to EBITDA of $202.9m and $13.6m of Free Cash Flow reflecting the operational transition that we have achieved in. Matthew Hird Chief Financial Officer Basis of preparation The Group s financial information has been prepared in accordance with International Financial Reporting Standards ( IFRS ) as published by the International Accounting Standards Boards ( IASB ) and as adopted by the EU. The Group s accounting policies are explained in Note 2 to the consolidated financial statements. The Group presents its consolidated financial statements in US dollars. At the beginning of January, the Tonkolili project and related infrastructure had been substantially completed and were ready for their intended use. For accounting purposes it was therefore concluded that the Group had commenced commercial production and commissioning of assets for the first time from the beginning of January. As a result, $2.3 billion of assets under construction were transferred to the relevant categories of property, plant and equipment (see Note 15 to the consolidated financial statements). The Group also commenced charging depreciation on those assets and started recognising revenue in the consolidated income statement from 1 January. As the financial year is the first year of production and commissioning for the Group, the comparative information for most items within the consolidated income statement do not represent a like-for-like comparison. For those situations, the Financial Review will comment on the key facts, context and underlying components of the figures arising in the financial year only. During, the key performance indicators of the Group have been redefined reflecting the transition to an operating business, from a business whose main project was under construction. These are set out on page 14 and 15. The Directors believe that the redefined set of KPIs provide the most relevant basis for assessing the underlying trading performance of the Group given its next stage of development.

29 27 Consolidated income statement Income statement An abridged analysis of the consolidated income statement for the year ended 31 December is shown below: (unless otherwise stated) Revenue Operating costs (excluding depreciation, amortisation and special items) (666.2) (26.5) EBITDA (26.5) Depreciation and amortisation (120.3) (1.4) Operating profit/(loss) before special items 82.6 (27.9) Special items (152.1) (197.8) Operating loss (69.5) (225.7) Imputed interest cost of deferred income (68.9) (39.5) Gain on non-controlling interest put option Loss on derecognition of borrowings (21.1) Impairment of available for sale investments (39.6) (Loss)/profit before finance items and taxation (8.2) 2.1 Net finance expenses (85.8) 2.2 (Loss)/profit before taxation (94.0) 4.3 Income tax credit (Loss)/profit for the year (89.6) 32.1 Non-controlling interest 1.1 (3.9) (Loss)/profit for the year attributable to equity holders of the Company (90.7) 36.0 (Loss)/earnings per share based on (loss)/ profit for the year US cents Basic (loss)/profit (27.37) Loss per share based on Underlying Profit US cents Basic loss (24.65) (20.38) Revenue Revenue of $869.1m has been recognised in the consolidated income statement for the year ended 31 December. Export sales volumes were 12.1 million wet metric tonnes, equivalent to 10.8m dry metric tonnes. Revenue is determined using dry tonnage rates quoted by the benchmark Platt s 58% Fe North China Price less freight costs, customer discounts, deduction for chemical impurities and processing charges. An analysis of how revenue is recognised in the consolidated income statement is set out below: Gross revenue 1,269.5 Freight cost (251.8) SISG offtake discount (32.5) Other customer discounts (8.3) Chemical impurities and processing charges (140.3) Net revenue Release of deferred income 32.5 Revenue recognised in the income statement $202.9m EBITDA (before special items) The average price used to determine revenue for the year was $117.9 per tonne, which compares to the average benchmark Platt s price across of $118.9 per tonne. The difference reflects timing differences as export sales are not evenly priced across the year. Freight costs are quoted in wet metric tonnes and adjusted to a freight price per dry metric tonne depending on the moisture level of the product. There was an average freight cost for the year, based on wet metric tonnes, of $20.8 per tonne. The Group has delivered under four offtake contracts with several customers during the year. There are fixed discounts that vary according to each offtake contract, with the discount depending on moisture content, product type and Platt s price at the time of delivery. Similarly, there are discounts that vary according to each offtake contract depending on the grade of iron of the product shipped and contained deleterious elements. After these deductions, the realised price for sales (i.e. FOB) was $77.7 per tonne, $41.2 per tonne below the average benchmark Platt s price for the year. In March, SISG invested $1.5 billion in return for a 25% stake in the underlying assets of the Tonkolili project and a discounted offtake agreement over the life of the mine. As a result, SISG s future discounts on shipments were recorded as deferred income (a liability) in the Group accounts (see Note 25 to the consolidated financial statements). Therefore, in the case of sales to SISG, a portion of the deferred income is released with a corresponding credit to revenue to offset the discounts on the sales in the year. As a consequence, the actual cash consideration derived from sales is less than the recognised revenue in the consolidated income statement. In, iron ore sales were capitalised to assets under construction. EBITDA Measuring earnings before interest, taxation, depreciation and amortisation ( EBITDA ) gives an indication of the Group s ability to generate cash from its underlying operations. This performance measure removes non-cash items and those components which are special items that do not impact the underlying trading performance of the Group. In, being the first year of operations and commissioning, the Group recorded EBITDA of $202.9m. Revenue Operating cash costs (excluding depreciation, amortisation and special items): Cost of sales (539.5) Selling and distribution expenses (79.7) General and administrative expenses (47.0) (26.5) EBITDA (26.5) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

30 28 Financial review continued Operating cash costs of $666.2m includes cost of sales of $539.5m (: $nil), selling and distribution expenses of $79.7m (: $nil), and general and administrative expenses of $47.0m (: $26.5m). Operating cash costs exclude depreciation and amortisation of $120.3m (: $1.4m). In, operating costs except general and administrative expenses were capitalised to assets under construction. Cost of sales By type of operation, cost of sales are split between the mine ($275.3m), railway ($55.3m), port ($162.0m) and central services ($46.9m), all excluding depreciation. Central services includes functions which provide common services across all parts of the business in Sierra Leone, for example, IT, communications, community, sustainable development, security and government affairs. Expenditure for the mine primarily relates to the costs of mining, processing and rehandling material. Contractors costs comprise the majority of the expenditure at the mine, mainly relating to the mining contractor and the two contractors which operate the processing plants. Other costs include labour, fuel and consumables. The costs at the rail consist of maintenance costs for the locomotives, wagons and track. Fuel for the locomotives is also an expense, together with labour, although the rail operation is less labour intensive than the mining operations. The largest items of expenditure within the port relate to the cost of contractors for the operation of the trans-shipment vessels and the tugs. Other costs include labour and consumables. By type of expenditure, the largest categories of cost relate to contractors ($297.8m), consumables ($118.0m) (including fuel of $75.1m) and personnel costs ($82.5m). The most significant contractors relate to mining, the processing plants, the transhipment vessels and tugs, as well as the maintenance contracts for the railway. Personnel costs are split between expatriates and national employees on an approximate 1:7 headcount ratio. Selling and distribution expenses Selling and distribution expenses include $24.9m of royalties paid to the Government. These are calculated based on the terms of the mining agreement at 3.0% of net revenues. There are also further payments of 0.1% each to two environmental and development funds that support projects in the surrounding areas to Pepel and Tonkolili. Given the Group does not expect to directly use these projects as part of its operations, the costs associated with these projects are expensed. Selling and distribution expenses also includes $10.3m for demurrage costs which were higher than anticipated given the operational challenges experienced during the year. These costs are net of port income derived from the provision of services to the ocean-going vessels when they are at anchor outside Pepel. The other major cost item within selling and distribution expenses are sales commissions payable to CRM, a shareholder, as part of its original investment. General and administrative expenses General and administrative expenses (excluding depreciation and amortisation) were $47.0m for the year, compared to $26.5m in. The principal reasons for the increase relate to higher personnel and travel costs associated with the corporate office in London. A major cost reduction exercise was completed in the second half of and core corporate office costs in future years are targeted to be around $30.0m. Cash costs The Group measures C1 production cash cost in order to monitor and control its production costs on a per tonne basis. The All-in cash costs indicate how well the Group has managed its end-to-end operational cost on a per tonne basis. C1 production cash cost calculation is the cash cost of the mining, railway and port operations divided by wet tonnes shipped and excludes depreciation and amortisation. All-in cash cost represent the cash costs of production (mining, railway and port), selling and distribution expenses, general and administration expenses and sustaining capital expenditure, excluding depreciation and amortisation, divided by wet tonnes shipped. Both C1 cash production cost and All-in cash cost per tonne are highly geared towards export volumes given the majority of costs within the business are fixed. During, the costs per tonne were adversely impacted due to lower than planned tonnes shipped due to operational issues with the trans-shipment vessels experienced in the middle of, lower availability of lump product during the wet season and the rip in the CV02 belt at plant 1B which impacted productivity throughout the year. C1 production cash cost and All-in cash cost are calculated as follows: Cost of sales (656.4) Depreciation allocated to cost of sales C1 production cash cost (539.5) Selling and distribution expenses (79.7) General and administrative expenses (excluding depreciation and amortisation) (47.0) Sustaining capital expenditure (50.4) All-in cash costs (716.6) Ore shipped (wet tonnes) 12,128,348 C1 production cash cost per tonne (US$) All-in cash costs per tonne (US$) 59.08

31 29 Operating loss The operating loss of $69.5m (: $225.7m) includes operating cash costs of $666.2m, $120.3m (: $1.4m) of depreciation and amortisation, and special items of $152.1m (: $197.8m). The depreciation charge of $119.6m (: $0.8m) was significantly higher than prior year primarily due to the transfer of $2.3 billion of assets from assets under construction to property, plant and equipment. The Group commenced depreciation on the majority of those assets from 1 January. Special items Special items are presented separately, due to their nature or the expected infrequency of the events giving rise to them. The breakdown of special items excluded from EBITDA is set out below: Penalties for SISG warranty breach Impairment of property, plant and equipment 25.1 Onerous offtake contracts and contractor claims Transaction costs and other professional fees Impairment of exploration expenditure 7.6 Provision for doubtful debts 7.4 Adviser's fees claim Derecognition of assets under construction 41.5 Loss due to fuel misappropriation 18.0 Total special items Further detail on each of the special items is provided below: Penalties payable to SISG are $46.3m (: $51.1m), and include compensation for not achieving the minimum production rate of 12Mtpa which was expected at the beginning of. This production was instead achieved by 1 May. The penalties also cover certain breaches of the business and finances of the project companies at the time of closing the transaction with SISG in. As a result of a change in the intended use of assets, an impairment charge of $25.1m (: $nil) was recognised against certain property, plant and equipment assets, including a camp at the mine site as well as certain railway and port infrastructure projects. Onerous offtake contracts and contractor claims include compensation charges of $19.7m (: $55.0m) for the Group s inability to fulfil levels of sales volume under several offtake contracts. The Group also impaired its investment in a gold exploration project by $7.6m as this project is not part of the ongoing activities of the Group and no further exploration work is expected in the near future. Transaction costs of $9.0m and other professional fees include costs incurred for the proposed strategic investment by Tianjin Materials and Equipment Group Corporation and some residual costs relating to the investment made by SISG in. The Group has recorded a charge for doubtful debts of $7.4m during the year-ended 31 December. This primarily relates to a disputed trade receivable balance that the Group deems is no longer recoverable. No such items were recorded in. An expense of $37.0m has been recognised in relating to a claim for financial adviser s fees relating to fund raisings and transactions in prior years. The expense recognised in is based on the judgement reached by the Commercial Court in London in June 2014, including interest and estimated legal costs of the other party. The expense recognised in the consolidated income statement is net of an existing provision of $6.2m relating to this claim which was recognised in Loss before finance items and taxation Loss before finance items and taxation of $8.2m (: $2.1m profit) includes a fair value gain of $169.8m (: $288.4m) on the SISG put option (see Note 25 to the consolidated financial statements). This gain was offset by $68.9m (: $39.5m) of imputed interest cost on deferred income and an impairment of available for sale investments of $39.6m. Further detail on each of these items is provided below: The fair value gain of $169.8m is calculated based on the fair value movement using an enterprise value model of the quoted African Minerals Limited share price. An option exists in the SISG agreement whereby SISG can sell back its 25% interest in the project companies at the fair value in the unlikely event Frank Timis (Executive Chairman) voluntarily chooses to resign from the Board. The put option valuation utilises an share price of $3.15 (: $4.46) and an estimated significant influence component of $48.8m (: $64.2m). The Group recognised an imputed interest cost of $68.9m (: $39.5m) in the year, being the charge associated with the unwinding of the deferred income arising from the SISG discounted offtake agreement. The imputed interest charge was higher in due to a full year of unwinding the discount in compared to as SISG only made their investment in March. Due to a significant decrease in the market valuation of the Group s available for sale investments for a prolonged period, the Group has recorded impairments of $32.2m in Cape Lambert Resources Limited, $7.3m in Obtala Resources Limited and $0.1m in Stellar Diamonds. Net finance costs Net finance costs of $85.8m mainly comprise borrowing costs and financing fees. Net finance costs are stated net of finance income of $0.1m (: $2.2m). The borrowing costs are the effective interest costs on the Group s borrowings, namely $44.9m arising on the convertible bond, $10.2m on the pre-export finance facility entered into in April with the balance split between the cost overrun facility and the equipment financing facilities. Financing fees include political risk insurance for facilities secured on the Group s assets in Sierra Leone and other debt raising related costs. In, finance costs were capitalised to assets under construction. Taxation (Loss)/profit on ordinary activities before tax (94.0) 4.3 Group s domestic tax rate is as follows: Profit/(loss) before tax multiplied by the standard rate of UK Corporation tax 23.3% (: 24.5%) 21.9 (1.1) Effects of: Net income not taxable Expenses not deductible for tax purposes (34.4) (21.8) Effect of changes in tax rates (1.1) Derecognition of previously recognised deferred tax assets (9.0) Recognition of previously unrecognised temporary differences 0.6 Tax adjustments in respect of prior years 3.2 (1.8) Losses not recognised (16.4) (11.4) Effect of overseas tax rates (1.0) (5.6) Total taxation credit STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

32 30 Financial review continued During, a taxation credit of $4.4m (: $27.8m charge) was recognised relating to the recognition of deferred tax assets on qualifying expenditure and tax losses in Sierra Leone. In the effective tax rate reconciliation set out on the previous page, the most significant movements relate to: Net income not taxable relates to the non-taxable gain arising on the SISG interest put option; Expenses not deductible for tax purposes are principally due to the impairment of the available for sale investments, penalties for the SISG warranty breach and the provision for the financial adviser's fees claim as discussed in special items above; The Group has also derecognised previously recognised deferred tax assets relating to brought forward tax losses at head office level given the expected future tax profile of the head office group of companies; Tax adjustments in respect of prior years of $3.2m (: $1.8m) relate to a change in the accounting treatment of deferred tax liabilities previously held on consolidation; and Tax losses not recognised relate to tax losses incurred at head office level for which no deferred tax asset has been recognised. Loss for the year The Group s loss for the year was $89.6m compared to a profit of $32.1m in. The loss for the year was due to an operating loss of $69.5m, net finance costs of $85.8m, an imputed interest charge of $68.9m on the unwinding of the deferred income, an impairment charge of $39.6m against the Group s available for sale investments, offset by a gain of $169.8m on the SISG put option. Underlying Profit The Group uses Underlying Profit as an alternative measure of earnings. The Group believes that this provides a more consistent measurement for comparing the underlying financial performance of the Group s operations. Underlying Profit is the profit or loss attributable to equity holders excluding special items and the revaluation of the SISG put option, and their resultant tax effect. The Group recorded EBITDA of $202.9m, but the Underlying Profit was reduced to a loss of $81.7m. This movement is primarily due to $120.3m of depreciation and amortisation, net finance costs of $85.8m and an imputed interest cost of $68.9m. Underlying Profit in the previous year was principally derived from general and administrative costs of $27.9m and the imputed interest cost of the deferred income of $39.5m. There was little movement in Underlying Profit between the current and prior years, although the composition of the two income statements was materially different. The reconciliation from loss attributable to equity holders to Underlying Profit is as follows: (Loss)/profit attributable to equity holders (90.7) 36.0 Gain on non-controlling interest put option (169.8) (288.4) Impairment of available for sale assets 39.6 Special items Non-controlling interest share of special items (1.1) (1.1) Tax effect from above items (11.8) (32.7) Loss on derecognition of borrowings 21.1 Underlying Profit (81.7) (67.3) Earnings per share Weighted average number of common shares in issue (million) (Loss)/earnings per share US cents: Based on (loss)/profit after taxation basic (27.37) Based on Underlying Profit basic (24.65) (20.38) The only change to the weighted average number of shares in issue relates to 266,668 share options and warrants which were allotted during the year. Consolidated balance sheet Property, plant and equipment Capital expenditure incurred on property, plant and equipment in has significantly reduced compared to the prior year as the mine and infrastructure assets were substantially complete at the beginning of January and were ready for their intended use. As a result, assets under construction to the value of $2.3 billion were transferred to the relevant categories of property, plant and equipment (see Note 15 to the consolidated financial statements), and depreciation commenced from 1 January. Of the capital expenditure incurred during, $119.8m related to the continuation of construction costs which were completed by 30 September, $50.6m related to early design and evaluation work for Phase II and $50.4m was incurred for sustaining capital expenditure. In addition, the Group recognised a mine restoration and decommissioning provision of $31.5m which was a non-cash addition capitalised to property, plant and equipment.

33 31 Capital employed The capital employed (as defined by the Group) comprises equity attributable to shareholders, non-current interest-bearing loans and borrowings, the non-current element of deferred income relating to the SISG discounted offtake agreement and the fair value of the SISG put option. The deferred income and fair value of the SISG put option have both been included within capital employed as they originate from the $1.5 billion investment made by SISG in March. Capital employed increased by $49.8m during, predominantly due to the Group entering into the pre-export finance facility and the increase in deferred income due to its unwinding. Offsetting these increases was a retained loss for the year of $89.6m charged to equity and a reduction in the fair value of the SISG put option. Total equity ,051.5 Non-current interest-bearing loans and borrowings Non-current deferred income SISG put option Capital employed 2, ,591.6 In April, a $250.0m pre-export finance facility was entered into by the project companies. This facility was fully drawn by the year end and carries an interest rate of LIBOR plus 5.5%. Repayments under this facility commenced in March 2014 with final maturity being in February The Group is currently seeking to replace this debt with longer-term funding in order to more closely align the maturity profile of the project companies debt with their revenue generation profile. Whilst the Directors are confident this refinancing exercise will be successful, until it is complete, the Group faces a material uncertainty regarding its ability to service its debt in the short term. This is discussed further in Note 3 to the consolidated financial statements. Also at the project company level are two equipment financing facilities whose nominal value in aggregate was $188.0m. At the year end, after draw downs and repayments in the current and prior years, the outstanding nominal balance was $135.3m. The interest rates on the facilities are LIBOR % and LIBOR + 6.0% and their maturity dates are in March 2017 and June Included within net financial indebtedness is a shareholder loan due from the project companies to SISG with a nominal value of $56.3m which is due for repayment by 31 December There is also a shareholder loan due from the project companies to the Parent Company of $101.5m but this is eliminated on consolidation. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Net financial indebtedness Net financial indebtedness (as defined by the Group) comprises cash and cash equivalents and interest-bearing loans and borrowings. A summary of the net debt position is shown below: Cash and cash equivalents Current interest-bearing loans and borrowings (263.8) (253.6) Non-current interest-bearing loans and borrowings (571.9) (327.7) Net financial indebtedness (473.3) 20.6 Cash and cash equivalents of the Group includes restricted funds of $304.6m (: $585.8m) received from the SISG transaction. This restriction is based on the shareholders agreement with SISG in which use of these funds requires the joint approval of the Company and SISG. The intention of both shareholders is that these funds will be allocated towards the funding of Phase II. Interest bearing loans and borrowings include a convertible bond with a nominal value of $400.0m at the Parent Company level. The coupon rate is 8.5% and the redemption date is 9 February Also at the Parent Company is the cost overrun facility which had a nominal balance of $37.5m at the year end. $42.5m of this facility had been repaid during. In February 2014, this facility was extended to June Non-controlling interest put option and deferred income The non-controlling put option liability of $536.2m (: $706.0m) is an estimated amount measured at fair value that would be payable to SISG, as detailed above, in the unlikely event Frank Timis (Executive Chairman) chooses to resign voluntarily from the Board. This put option is fair valued at each period end with the resulting movement being recognised in the consolidated income statement. The basis of the valuation is described in Note 25 to the consolidated financial statements. The deferred income of $593.7m (: $537.3m) represents the net present value of the future discounts on shipments of iron ore that SISG will receive under its offtake agreement. The movement from the prior year is due to a release of $32.5m credited to revenue representing the discount on the iron ore shipments made to SISG in the year offset by the imputed interest cost of $68.9m on its unwinding at the Group s cost of capital. Non-controlling equity interest The non-controlling equity interest of $136.9m (: $135.8m) recognised in the consolidated balance sheet is the 10% holding that the Government owns in African Railway and Port Services (SL) Limited ( ARPS ) and which is based on the net assets as at the balance sheet date.

34 32 Financial review continued Consolidated cash flow statement Summary of cash flow movement A summary of cash flows is shown below: EBITDA Release of deferred income (32.5) Interest paid (69.0) Share-based payments (0.8) Unrealised foreign exchange loss 0.6 Net cash flows from operating activities before capital expenditure and working capital movements Sustaining capital expenditure (50.4) Working capital movements post commissioning (37.2) Free Cash Flow 13.6 Phase II project capital expenditure (50.6) Cost to complete phase I capital expenditure (119.8) Warranty provision paid (51.1) Working capital movements pre commissioning (225.3) Other movements (60.7) Movement in net debt (493.9) Free Cash Flow Free Cash Flow is a measure of the cash generated by operating activities. Capital expenditure relating to the completion of the construction of the project and early design and evaluation work for Phase II has therefore been omitted from Free Cash Flow, as have working capital movements related to pre-commissioning revenues and costs of the project. The release of deferred income of $32.5m is a non-cash item which has been credited to revenue and relates to the discounts received by SISG on iron ore shipments during the year. Although the release of deferred income is included within revenue, as it is a non-cash item, it is excluded from operating cash flows. Sustaining capital expenditure principally includes the construction of the Plant 1B tailings dam for $20.0m, construction of the 260 man camp at Pepel for $14.0m and conversion costs of Plant 1D for $7.0m to enable it to process lump and fines material. The post-commissioning working capital outflow of $37.2m is principally due to increases of $134.0m and $34.3m in trade receivables and inventories, respectively, offset by an increase of $126.5m in trade payables. Trade receivables have increased in line with sales in the year, particularly towards the end of when nine vessels were despatched in December. Inventory levels have increased as there has been a focus in increasing the level of critical spares. Trade payables have increased in line with a ramping up of operations. The level of trade payables are normalised, consistent with improved cash flows generated by the project. Project capital expenditure and pre-commissioning working capital Although the project entered into commercial production from the beginning of January and most of the assets were commissioned from this date, there was some residual capital expenditure relating to the close-out of construction activities. These construction costs were finalised by 30 September. Capital expenditure for early design and evaluation work for Phase II amounted to $50.6m. The working capital outflow of $225.3m relating to pre-commissioning revenues and costs was due to the settlement of $284.1m in precommissioning related trade payables and accruals offset by receipt of $52.2m of pre-commissioning trade receivables. During the year, the Group settled the outstanding balances related to construction activities as they drew to a close by the end of September. Warranty provision The payment of the warranty provision of $51.1m relates to the settlement of the penalty agreed with SISG in respect of a shortfall in production for. Interest paid during the year was $69.0m and relates to the interest costs paid on the Group s debt facilities, of which the most significant components were $34.0m of interest paid on the convertible bond and $17.6m was paid on the pre-export finance facility.

35 33 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 200% Increased loading capabilities following commissioning of Dumper#2 in April.

36 34 Sustainable development For AML the aim of sustainable development is to ensure that our mining operations leave a positive environmental, economic and social legacy. As Sierra Leone s largest private sector employer, we aim to make a sustainable contribution to the social and economic development of our affected communities throughout the life of the operation and beyond. We seek to promote the development of self-sustaining local communities through the implementation of projects that are mutually beneficial to communities and the Company, but which have a life beyond the presence of AML. Finally, AML implements its sustainable development strategy to reduce social risk posed to the project and to pacify local perceptions. AML aims to bring about sustainable development within its host communities in three ways, investing in education, promoting small scale economic growth and improving access to healthcare. AML ensures that none of its initiatives make government services or responsibilities redundant, yet aims to complement the efforts of the Government of Sierra Leone ( GoSL ). Environment Seasonal variations throughout have been operationally and socially challenging, from dry and dusty months to the rainy season. The combination of tropical rainstorms, weathered soils and steep terrain can result in high erosion and sedimentation which not only disrupt our production, but can also impact environmental health and wellbeing. In, to preserve two Eriocaulon floral species discovered in the Tonkolili River during the environmental baseline studies of Phase I, AML and Kew Gardens conducted successful micropropagation trials. AML has learned a great deal from the environmental baseline works undertaken concurrent to the accelerated development path adopted during Phase I, which has enabled the Company to commence detailed studies in advance of requirements for Phase II. In, we prioritised biodiversity as a critical concern, including the welfare and habitats of large and small mammals; aquatic ecology; reptiles and amphibians; insects including moths and butterflies; birds; and social baseline surveys assessing ecosystem services. In 2014, we will follow up on each of these biodiversity focuses and protective measures will be mapped out for Phase II. Simultaneously, beyond its biodiversity drive, the Group will implement Environmental Managment Plans, which have recently been developed for specific operations (mine, rail and port) and will follow up on recommendations identified by the September EPA audit. In line with best practice, an indicative closure plan and cost estimate was compiled during the year. At this stage in the life of the mine, its expected to be multi-generational. Notwithstanding, through annual updates the plan will improve and evolve over time and, with the associated cost estimate, will mean that the liability for decommissioning and rehabilitation is properly understood and reported at all times. In 2014, AML will continue to work with Kew Gardens to locate further populations of the two Eriocaulon species, while simultaneously trans-locating some specimens to other rivers.

37 35 In 2014, AML s Communities team also plans to upgrade the Bendugu Health Centre and Kegbema School, the Bumbuna Clinic, Mabonto Water Dam, and refurbish schools in the Nerekoro and Sambaia communities STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Waste handling Like many major mining and associated infrastructure operations, the acute impact of indirect environmental threats, e.g. from community influx, artisanal mining, and human encroachment remains very real and of great concern across AML s rail, port and mine sites. In, AML addressed Sierra Leone s virtually absolute lack of waste management infrastructure by installing and commissioning double chamber incinerators, plastic and cardboard bailers, drum crushers, fluorescent tube crushers and oil/water separators. In 2014, AML will address the management of waste hydrocarbons. The Company has tested numerous initiatives for reusing, recycling and/or disposing of used hydrocarbons and continues to seek the optimum solution in that regard. AML will continue its ongoing and encouraging testing of waste oil as a diesel substitute in explosives manufacturing, and also remains committed to annually updating and advancing our temporary storage facilities for waste hydrocarbons. Construction of a new such facility is already under way to accommodate the Company s growing waste hydrocarbons inventory, following the indicative closure plan and cost estimate programme compiled in. Social engagement The communities surrounding AML s operations are also extremely valuable to the Company and play a pivotal part in the Tonkolili Phase II Environmental and Social Impact Assessment ("ESIA") programme under way. AML is pleased that in excess of 80% of its total workforce continues to comprise Sierra Leonean nationals, and this workforce will benefit from enlarged training programmes following the appointment of Ausenco as FEED Engineer for Phase II, in Q1 2014, which signals that the project development path will continue on track. That appointment also marks an important precursor to advancing and completing the ESIA, in consultation with AML s workforce and local communities. The ESIA expected to conclude in Q and will provide an important basis for further prescriptive community engagement activities. The Company has taken every precaution to document all communitylevel unrest, including issues related to employment, CSR, compensation expectations, and incidences of vandalism and theft. AML is of the view that creating a cohesive, long-term relationship between the Company and community is a compelling objective, not only in terms of its investment case in Sierra Leone; but also based on its role as a corporate citizen. During the coming year, AML and its local communities, in consultation, will identify new opportunities to promote socioeconomic development, while promoting growth that is self-sustaining and independent of AML s core business activity. In, AML reconstructed two secondary schools, both in communities found close to our rail alignment, in an effort to ensure remote communities have access to education. AML, together with our NGO partner Project C.U.R.E. also refurbished two community health centres to ensure communities have better access to quality healthcare. In addition we refurbished two community markets and two community storage warehouses; this is an endeavour to increase economic activity within in affected communities. Additionally, AML built two community centres to support community cohesion.

38 36 Sustainable development continued In 2014 AML, in consultation with the community, is looking at different ways to become a catalyst to promote socio-economic development, whilst also promoting growth that is self-sustaining and independent of AML core business activity. Community Investment will focus on ways that AML can maximise business opportunities for its affected communities. Therefore, AML has committed to building and supporting a community run bakery that will, at full operation, provide bread for our Port Site Camp, and in return will provide income generation for women in the community closest to our Port Site. AML will support the development of the bakery, through creating a guaranteed buy back scheme with the community, supporting employees of the bakery with small business training saving schemes. Lastly AML will aid the community in finding alternative suppliers for the bakery elsewhere in Sierra Leone. Furthermore, as part of AML s commitment to sustainable development, the Company will support three women s groups to develop agricultural farmlands around the chiefdoms in which Tonkolili Mine is located. AML will assist in the provision of technical skills, tools and equipment to enable these groups to produce crops at a commercial level. The crops will later form part of the Company s buy-back scheme with catering contractors at the mine site. The project will seek to generate economic growth in rural communities and also focus on income generation opportunities for women in rural and remote communities and aim to connect them with profitable markets. The project will demonstrate a solid commitment from AML that it is committed to supporting and developing alternative livelihoods, such as agriculture in Sierra Leone; AML will continue to develop its all-in community engagement programmes and address all of the aforementioned areas for improvement. The Company will also fund training and development for staff and providing guaranteed buy-back and savings schemes related to future business. AML named best mining company and largest private sector employer, Sierra Leone Chamber of Commerce, 21 February 2014 Human Resources and Rights The centralisation of formerly site-specific policies related to human resources across AML s mine, rail and port operations marks an important development for the Company and all of its employees. From this platform, AML remains focused on going beyond its compliance with the international standards of the UN Global Compact and Equator Principles while investing in our people and their businesses directly and indirectly related to our core operations, we take every precaution to ensure their safety and wellbeing. In (October), AML implemented newly standardised and centralised Human Resources policies and systems of management of Human Resources in complement to the Company s growing headcount and geographical footprint. In November, AML also established a range of committees for matters that will impact employee welfare in the organisation, through which senior management can progress concerns of workers. In 2014, AML continues to assemble comprehensive and standardised Human Resources policies and procedures in managing its Human Resources. Fields of focus include: Workers organisations for comparatively less well-represented senior and foreign employees; designing a Company retrenchment policy to match industry standards and the Sierra Leone Labour Laws and Collective Bargaining Agreement ( CBA ) with which AML fully complies; benchmark setting for third party contractors within the Company Human Resources policies (under way); and new qualitative and quantitative evaluation and assessment of occupational hazards.

39 37 Gibril Bangura, Executive Chairman, AML Sierra Leone, received the prestigious Africa Builder Award in May, 2014 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Phased approach to the Sustainability Framework onwards Implementation Education AML reconstructed two secondary schools in communities found close to our rail alignment to ensure remote communities have access to education. Economic Growth AML refurbished two community markets and two community storage warehouses. Healthcare AML, together with our NGO partner Project C.U.R.E., refurbished two community health centres. Implementation Education AML will target skills diversity by supporting three womens' groups in chiefdoms surrounding Tonkolili, including the funding of training and development for staff and providing guaranteed buy-back and savings schemes related to their future businesses. Economic Growth AML will be building and supporting a community run bakery that will, at full operation, provide bread for our Port Site Camp, and in return will provide income generation for women in that community. Healthcare AML will build on its long-stated commitment to fighting Malaria infection rates, following our record year of reductions in. Implementation Education African Minerals, in partnership with the Government of Sierra Leone, will also develop a state-of-the-art Technical Institute at a refurbished and expanded Magbaruka College. As a future Centre of Excellence, the Institute will develop national middle tier manpower resources, with the skills and abilities needed to gain access to jobs, primarily within the mining sector. Economic Growth To maintain our 80% plus Sierra Leonean workforce and continue our commitment as a major private investor and employer in the country. Healthcare Maintain and build upon the success of our malaria infection rate initiatives with new ambitious targets for year-on-year case reduction.

40 38 Board of Directors

41 39 Executive Directors 01 Vasile (Frank) Timis Executive Chairman Frank Timis, aged 50, has been the Executive Chairman of AML since 19 December He was the founder and was former Executive Chairman, President and Chief Executive Officer of European Goldfields Ltd. He was also founder and former Executive Chairman of both Regal Petroleum Plc, which is listed on AIM, and of Gabriel Resources Ltd., a company listed on the Toronto Stock Exchange. 02 Gibril Bangura Executive Chairman, AML Sierra Leone Gibril Bangura, aged 55, a founding shareholder, has been a Director of the Company since 30 January 1998 and Director and/or Executive Chairman of the Company's Sierra Leone subsidiaries since He is also a Non-Executive Director of African Petroleum Corporation Ltd. 03 Bernard Pryor Chief Executive Officer Bernard Pryor, aged 56, was appointed as CEO on 13 August, having previously been an Independent Non-Executive Director since July He previously held senior executive positions within Anglo American PLC as Head of Business Development, and CEO of Anglo Ferrous Brazil Inc. From 2000 to 2006 he was Director and Chief Operating Officer of Adastra Minerals Inc., developing the Kolwezi tailings deposit in the DRC. Prior to that, Mr Prior held several global minerals consulting positions. Non Executive Directors 04 William Murray John Mr. John, aged 55, joined AML on 19 August 2009 and is the President and Chief Executive Officer of Dundee Resources Limited, a subsidiary of Dundee Corp. Mr. John also holds senior positions at several other publicly traded companies, including Corona Gold Corporation, Dundee Precious Metals Inc., Breakwater Resources Ltd. and Iberian Minerals Corp. Prior to joining the Dundee group of companies, Mr. John graduated from the Camborne School of Mines in 1980, received a Master of Business Administration degree from the University of Toronto in 1992 and had extensive experience working as a mining engineer. 05 Jurong Cui Mr. Jurong Cui, aged 52, was appointed to the Board in April, following the completion of SISG investment into the Tonkolili Project. Mr. Cui serves as a Vice President of SISG and is on the boards of various SISG subsidiaries. Mr. Cui brings to the Board of African Minerals 30 years of experience in the steel industry, serving in a variety of leadership roles in steel and iron plants in the Gansu Province. He previously served as Deputy Director General of the Gansu Province Geological Mineral Exploration Development Authority, and as the Deputy Mayor of a city in the Gansu Province. Mr. Cui has a Master of Metallurgical Engineering degree from the Xi an University of Architecture and Technology. 06 Li Zhimin Mr Li, aged 50, joined AML on 3 August and is currently Vice President of China Railway Materials Company Limited ( CRM ), a large scale state owned enterprise, where he is in charge of CRM s International, Mineral and Energy divisions. CRM is one of China s largest integrated service providers in the railway industry and the largest steel trader in China. CRM is a significant shareholder in AML, owning approximately 12.4% of the Company. Mr Li joined CRM in 2010, from Sinosteel, where he served in a variety of management positions most recently as the Vice President in charge of International Business. Mr Li has a PhD in Management Science and Engineering from the University of Science and Technology. Independent Non Executive Directors 07 Ian Cockerill Independent Non-Executive Director and Vice Chairman Ian Cockerill, aged 59, joined the Board on 22 July. With 38 years of experience in the mining industry, Ian has served as the Chief Executive Officer and Director of Anglo Coal Holdings Ltd, a wholly owned subsidiary of Anglo American Plc, between May 2008 and December 2009; as a Director and Chief Executive Officer of Gold Fields Ltd. from July 1, 2002 to May 1, 2008 and its Chief Operating Officer and Managing Director from October 1999 to June 30, Prior to Gold Fields, he served as an Executive Officer for Business Development and African International Operations at AngloGold Limited. 08 Roger Liddell Senior Independent Director Roger Liddell, aged 57, joined the Board on 15 November He was previously the Chief Executive of the London Clearing House, the world s largest clearing house, clearing numerous equity markets, futures and options, commodity markets and over the counter derivatives. Prior to joining the London Clearing House in 2006, he worked for Goldman Sachs for approximately 13 years, becoming Managing Director and Head of Global Operations. 09 Dermot Coughlan Dermot Coughlan, aged 78, joined the Board in May Mr. Coughlan is currently Chairman and Chief Executive Officer of Derland Holdings Inc, a private investment holding company. Mr. Coughlan, a Chartered Certified Accountant, has held positions with Rio Tinto Zinc Corporation PLC and also with Alcan Industries and Indal Limited. From 1984 to 2000, Mr Coughlan was the founder, Chairman and Chief Executive Officer of Derlan Industries Ltd, a Public Company with multiple operations in Aerospace, Engineering and industrial markets in North America and Europe. Mr. Coughlan has also served as Chair of Audit and Human Resources Committees and also served on the Governance Committees of several public companies. 10 Nina Shapiro Nina Shapiro, aged 65 was appointed as an Independent Non-Executive Director on 12 April She was previously VP, Finance and Treasury and member of the Management Group, for the International Finance Corporation of the World Bank Group. She has had a distinguished career serving for more than 30 years in the World Bank, well respected for innovative work in the emerging and developed capital markets, as well as in project and structured finance. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

42 40 Directors report The Directors present their Annual Report on the affairs of ( the Company ) and its subsidiaries (together the Group ), together with the financial statements and auditors report, for the year ended 31 December. Principal activities The principal activities of the Group are the development, design, construction and operation of the world class iron ore deposit at Tonkolili, Sierra Leone, and its related rail and port infrastructure, and the marketing and sale of the iron ore produced from this asset. The Group is incorporated in Bermuda, listed on the London Alternative Investment Market, and the Group s head office is in London. Business review A review of the business during the year and to date, including comments on future developments, is contained in the Executive Chairman s review, key performance indicators and Business Review. Results and dividends The results of the Group are in the financial statements and the Financial Review section of the report. The Directors do not recommend the payment of a dividend and will not make such recommendation until they consider it prudent to do so, having regard to the need to retain sufficient funds to finance the development of the Group s activities. Subsequent events Events that have occurred since the 31 December accounts date are disclosed in Note 33. Financial instruments The Group s financial instruments primarily comprise cash, cash equivalents, and other instruments such as trade receivables, payables, and borrowings, which arise directly from its operations. Note 29 to the accounts gives details of the Group s risks and policies regarding financial instruments. Purchase of own shares The Group has not purchased or sold any shares in the Group during the year. Directors and Directors interests The Directors in office during and up to the date of this report, and (for those in office at the date of this report) their beneficial interests in the ordinary share capital of the Group, are shown below: Date of the report No. of shares 31 December No. of shares 31 December No. of shares Vasile (Frank) Timis 42,296,960 42,296,960 42,296,960 Bernard Pryor (appointed as Chief Executive Officer 13 August, previously a Non-Executive Director) 54,561 29,561 29,561 Matthew Hird (appointed as Chief Financial Officer 1 October, not a Director 1 ) n/a Gibril Bangura 7,792,624 7,792,624 7,792,624 Keith Calder (resigned 13 August ) n/a n/a n/a Miguel Perry (resigned 30 September ) n/a n/a n/a Ian Cockerill (appointed 22 July ) 9,000 9,000 n/a Roger Liddell 115, , ,000 Dermot Coughlan 100,000 50,000 50,000 Nina Shapiro 104,429 84,560 84,560 Murray John 174, , ,747 Li Zhimin Cui Jurong 1 Appointed during the year as Chief Financial Officer, though not a Director, and this information is included for completeness of disclosure. Directors share based remuneration Details of the Directors share-based remuneration are provided in the Directors Remuneration Report. Directors liability insurance and indemnity The Group maintains liability insurance for its Directors and officers. The Company s bye-laws, and the bye-laws or articles of some of its subsidiaries, include an indemnity for their respective Directors and officers. Supplier payment policy The Group s policy is to agree terms of payment with its suppliers for each transaction, and to abide by the terms of payment.

43 41 Substantial shareholdings As at the date of this report, shareholdings of 3% or more of the issued share capital of which the Group is aware are: Name Number % Holding Timis Diamond Corporation 1 42,296, % Franklin Templeton 41,554, % China Railway Materials Commercial Corporation 41,281, % M&G Investment Management 40,011, % Capital Research & Management 23,013, % BlackRock Investment Management 18,641, % 1 Frank Timis is a beneficiary of Timis Diamond Corporation. Statement of Directors Responsibilities Bermudan Company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Group and the profit or loss for that year. The Directors are required to prepare the financial statements of the Group on the going concern basis unless it is inappropriate to presume the Group will continue in business. The Directors confirm that suitable accounting policies have been used and applied consistently. They also confirm that reasonable and prudent judgements and estimates have been made in preparing the financial statements for the year ended 31 December and that applicable accounting standards have been followed. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and for ensuring that the financial statements comply with International Financial Reporting Standards. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Statement of the Directors in respect of the Annual Report and Financial Statements The Directors confirm that they consider that the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group s performance, business model and strategy. In reaching this conclusion the Board was assisted by a number of processes including the following: The Annual Report and Financial Statements were reviewed by appropriate senior management to ensure overall consistency; Management adopted an extensive verification and quality review process to ensure factual accuracy; An advanced draft was considered and reviewed by the external auditors; and The Audit Committee has reviewed the Annual Report and Financial Statements and recommended their approval by the Board. Annual General Meeting The Company s Annual General Meeting will be held at the London offices of the Group on 13 August 2014 at 11am. The notice convening the Annual General Meeting has been sent to shareholders with the Annual Report. Auditors Ernst & Young LLP has indicated its willingness to remain in office and a resolution to reappoint them as auditors will be proposed at the 2014 Annual General Meeting. On behalf of the Board Frank Timis Executive Chairman 30 June 2014

44 42 Corporate governance report The Company s shares are listed on AIM (the Alternative Investment Market of the London Stock Exchange), and the Company is subject to and takes all appropriate steps to comply with the AIM Rules. The Board recognises the importance and value for the Company and its shareholders of good corporate governance and is committed to appropriate standards of corporate governance. The Board and governance structure is monitored to ensure they are suitable for the Company s nature, status, size and circumstances, and are explained below. During the Board has been strengthened by the addition of an independent Non-Executive Director as Vice-Chairman, and the appointment of an existing Non-Executive Director as Senior independent Director. Board overview The Board is responsible for establishing the Company s strategy and goals, and for developing and approving plans to achieve these goals. Authority for the execution of the approved strategies and objectives, and daily running of the business, is delegated to the Executive Directors and senior management team. The Board maintains full and effective control of the Company by regularly monitoring financial and operational progress and risks, and retaining decision making on major issues and high value and strategic contracts. Composition of the Board and Board Committees At the date of this report the Company had ten Directors, consisting of three executive and seven Non-Executive Directors, of whom four are considered by the Board to be independent. On 13 August the Company appointed Bernard Pryor (who was an independent Non-Executive Director) as Chief Executive Officer. Ian Cockerill joined the Board as Vice-Chairman and independent Non-Executive Director on 22 July, and Roger Liddell (already an independent Non-Executive Director) was appointed as Senior Independent Director on 19 July. Keith Calder resigned as Director and Chief Executive Officer on 13 August, and Miguel Perry resigned as Director and Chief Financial Officer on 30 September. Matthew Hird was appointed as Chief Financial Officer on 1 October, and is not a Director of the Company. The Board has adopted, and regularly reviews, a schedule of Matters Reserved for the Board, which is available on the Company s website. Through this, the Board has reserved certain matters for its direct stewardship and decision making in conjunction with the committees appointed by the Board. Items marked* on that schedule will not be delegated to such committees. There are a number of formally constituted Committees of the Board including: the Audit Committee, the Remuneration Committee, the Risk and HSE Committee and the Disclosure Committee. Board balance Page 39 contains further information about each Director. The current Board membership provides a balance of industry and financial expertise which is well suited to the Company s activities. This will continue to be monitored and adjusted to meet the Company s needs and circumstances. Information and Professional Development Induction and professional development of Directors, and evaluation of the Board s performance, are currently performed on an informal basis; however as the Company progresses the Board will adopt more formal procedures. All Directors have access to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures and applicable rules and regulations are observed. The Board has a procedure allowing Directors to seek independent professional advice in furtherance of their duties, at the Company s expense. Formal agendas and reports are provided before each meeting and the Executive Chairman ensures that all Directors are properly briefed on issues to be discussed. Re-election of Directors The Company s bye-laws require one third of the Directors to retire by rotation at each Annual General Meeting, and they can stand for re-election at that meeting. Directors appointed by the Board to fill a casual vacancy hold office until the next Annual General Meeting, and they can stand for re-election at that meeting. Board and committee meetings The Board held seven full meetings for regular business during ; the Audit Committee held five meetings; the Remuneration Committee held eight meetings; and the Risk and HSE Committee held one meeting. Attendance at the Board and these committee meetings is shown in the table below: Board Audit Committee Remuneration Committee Risk and HSE Committee (Vasile) Frank Timis 7/7 Keith Calder (resigned in ) 4/4 Miguel Perry (resigned in ) 5/5 Gibril Bangura 5/7 0/1 Dermot Coughlan 7/7 5/5 8/8 Roger Liddell 6/7 5/5 8/8 Nina Shapiro 5/7 1/1 Bernard Pryor 7/7 1/1 Murray John 7/7 4/5 4/8 Li Zhimin 3/7 Cui Jurong 5/7 Ian Cockerill (appointed in ) 3/4 1/1

45 43 Audit Committee The Audit Committee consists only of Non-Executive Directors, being during : Roger Liddell (Chair and independent Non-Executive Director); Dermot Coughlan (independent Non-Executive Director); and Murray John (Non-Executive Director). After the last meeting of Ian Cockerill (independent Non-Executive Director) replaced Murray John on this Committee. The Chief Financial Officer and other Executive Directors and senior management as required, attend the meetings by invitation, as necessary, to facilitate its business. The external auditors are also invited to attend all meetings. Main responsibilities: The Audit Committee has formal terms of reference, which include: monitoring the integrity of the financial statements of the Group; reviewing significant financial reporting issues and judgements which they contain; reviewing the adequacy and effectiveness of the Group s internal financial controls and internal control and risk management systems; reviewing the adequacy and security of the Group s arrangements for its employees and contractors to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters; monitoring and reviewing the effectiveness of the Group s internal audit function; considering and making recommendations in relation to the appointment, reappointment and removal of the Group s external auditor; assessing the independence of the external auditor, taking account of any non-audit services; reviewing and approving the annual audit plan; reviewing the findings of the annual audit with the external auditor. Activities undertaken during : The Audit Committee met five times in. It reviewed the financial statements and auditors report for and half year results for, and approved the half year and full year audit scope for. It also reviewed the Group s insurance arrangements and received update reports on the Group s compliance programme. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The Committee reviewed the independence of the external auditor during the year, and no concerns were identified. Statement of the Audit Committee on significant financial reporting issues As part of its review of the Annual Report and financial statements the Audit Committee considered, among other matters, a number of significant financial reporting issues including the following: Adoption of the going concern assumption and management s conclusion that the Group will continue in operational existence for the foreseeable future; Assessment of the impairment of the Group s investments in Cape Lambert Resources Limited and Obtala Resources Limited due to the significant decrease in the market valuation of these investments for a prolonged period; Review of the impairment of the Group s property, plant and equipment as the recoverable value of certain individual assets was below their book value; Consideration of management s judgement that the production start date of the Tonkolili project was on 1 January ; Assessment of management s estimate of the useful economic lives of mining assets and property, plant and equipment, in particular the application of the unit of production method over the term of the mining licence; Concurrence with management s judgement to record Friable Haematite inventory at cost on account of its economic value to the future expansion of the mine; Adoption of management s assumptions used for the accounting of the Shandong Iron and Steel Group put option liability; and Assessment of management s judgement over provisioning and disclosure of contingent liabilities. The Audit Committee confirmed that it is satisfied as to how management has applied its judgement in addressing these issues, and with the manner in which these issues have been treated and disclosed in the Annual Report and Financial Statements. Remuneration Committee The Remuneration Committee consists only of Non-Executive Directors: Dermot Coughlan (Chair and independent Non-Executive Director); Roger Liddell (independent Non-Executive Director); and Murray John (Non-Executive Director). The Committee has formal terms of reference. It is responsible for determining the remuneration and other benefits, including bonuses and share-based payments, of the Executive Directors, and for reviewing and making recommendations on the Group s framework for executive remuneration. Further details about the Committee and its operation are set out in the Directors remuneration report on pages 45 to 47. Risk and Health Safety and Environment ( HSE ) Committee The members of the Risk and HSE Committee are Ian Cockerill (Chair, independent Non-Executive Director), Nina Shapiro (independent Non-Executive Director), Bernard Pryor (Chief Executive Officer) and Gibril Bangura (Executive Director). The Committee held one meeting in at which it received an update on the Company s performance and activities related to health, safety, environment, security, and community and social programmes. The Committee has formal terms of reference and its responsibilities include: implementing procedures to assess and monitor the Group s approach to: strategic risks, including political, market, reputational and competition issues; operational risks, including health and safety and environmental issues; compliance risks, including local and international laws and regulations; financial risks, to the extent these do not fall within the scope of the Audit Committee;

46 44 Corporate governance report continued advising on the Group s approach to identifying and assessing key business risks, allocating ownership of the risks to senior management and promoting mitigation actions; monitoring the implementation by executive management of action plans to manage the identified key risks; and reviewing the adequacy and effectiveness of the Company s internal control and risk management systems. The Company manages health and safety requirements through its health and safety policy and procedures which include regular and timely reporting to executive management of events, risks and risk management strategies. Disclosure Committee The Disclosure Committee consists of two Executive Directors and two independent Non-Executive Directors, one of whom is the Chair. Its remit is to ensure compliance with applicable disclosure requirements (including under the AIM Rules) in relation to any change in the Company s financial condition, its activity, the performance of its business, and its future plans and intentions. The Committee approves and reviews all material announcements before they are released. Relations with shareholders The Annual Report and Financial Statements contain information on the activities of the Company for the preceding year. It is sent to each shareholder on the share register, and published on the Company s website. The Company uses its website to provide information to shareholders and other interested parties, and in accordance with regulatory requirements issues news releases through the London Stock Exchange Regulatory News Service. The Executive Chairman and/or Chief Executive Officer and/or Chief Financial Officer hold regular meetings with institutional investors to keep them informed of developments and to respond to any questions. Shareholders have the opportunity to raise questions at the Annual General Meeting. Major shareholder agreements CRM, as a condition of its subscription for shares in 2010, had the right to acquire shares in the Company to maintain its shareholding in the Company at 12.5%, and to subscribe for any new issue shares proportionately to its shareholding. It also has the right to nominate one person to be appointed as a Director of the Company. It was restricted from holding shares and options together being more than 12.5% of the Company s issued capital without the Board s consent, with some limited exceptions to this restriction. In December, the Company agreed to a request from CRM to raise its restriction on share ownership from 12.5% to 15.0%. The Company has maintained the limit on CRM s voting shares at 12.5%, with any additional shares purchased by CRM in the market to be voted at shareholder meetings by an independent Non-Executive Director of the Company. Shandong Iron and Steel Group Co. Ltd, as a condition of its subscription for a 25% equity investment in the Company s Tonkolili project subsidiaries completed on 30 March, is restricted from holding shares and options together being more than 12.49% of the Company s issued capital. It also has the right to nominate one person to be appointed as a Director of the Company. By order of the Board Francis O Neill Company Secretary 30 June 2014

47 45 Directors remuneration report Introduction This report has been approved by the Board and the Remuneration Committee. This report complies with the Directors remuneration disclosure requirements that apply to the Company under AIM Rule 19, and also provides some additional information about Directors remuneration and remuneration policy. Remuneration Committee The Remuneration Committee comprises Dermot Coughlan (Chair and independent Non-Executive Director), Roger Liddell (independent Non-Executive Director), and Murray John (Non-Executive Director). Its responsibilities, as set out in its terms of reference, include determining and reviewing compensation arrangements for all Executive Directors, and such other senior managers as it is designated to consider. The Committee met eight times in. During the Committee extended the exercise period for Gibril Bangura s existing share options, approved termination payments payable to Keith Calder (CEO) and Miguel Perry (CFO), approved the remuneration arrangements for Bernard Pryor (CEO) and Matthew Hird (CFO), and changed the remuneration arrangements for Frank Timis (Executive Chairman). Remuneration policy for Directors The Group s remuneration policy for Executive Directors is to: pay a competitive salary that attracts and retains high quality management, having regard to their experience and the nature and complexity of their work; link individual remuneration packages to the Group s long-term performance using share-based awards and bonuses; and provide appropriate employment related benefits, including housing allowances for Directors working permanently away from their countries of normal residence. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS There are four main elements of the remuneration package for Executive Directors and senior management: basic annual salary; performance-related bonuses (short-term incentives); share-based awards (long-term incentives); and benefits. The Remuneration Committee has established the principles and framework for awarding short-term and long-term incentives, with targets to be set and approved by the Committee annually. The Non-Executive Directors receive fees for their services, which are agreed by the Board as a whole, in accordance with the bye-laws and on recommendation of the Executive Directors. The Non-Executive Directors each hold share options issued in January 2014, and otherwise do not participate in any of the Group s benefits or incentive schemes. No Director plays a part in any decision about his/her own remuneration. Directors Contracts The Group s policy is for Executive Directors to have service contracts which can be terminated by the Company on no more than 12 months notice. Li Zhimin is nominated as a Non-Executive Director by China Railway Materials Commercial Corporation, a shareholder in the Company, and is appointed as a Director in accordance with and subject to the subscription agreement. Cui Jurong is nominated as a Non-Executive Director by Shandong Iron and Steel Group Co. Ltd, which holds a 25% equity investment in the Company s Tonkolili project subsidiaries, and is appointed as a Director in accordance with and subject to the subscription agreement. The other Non-Executive Directors have letters of appointment, which can be terminated by the Director giving at least one month s notice, and by the Company in accordance with the bye-laws.

48 46 Directors remuneration report continued Directors Remuneration Remuneration (cash, bonus and benefits) for the Directors during the year was as follows: US$,000 Basic salary/ fees Bonus Benefits Total Total Executive Directors (Vasile) Frank Timis 1, , Bernard Pryor (appointed Chief Executive Officer 13 August, previously non executive director) Gibril Bangura , Matthew Hird 1 (appointed Chief Financial Officer 1 October, not a director) Keith Calder (resigned 13 August ) 1, , Miguel Perry (resigned 30 September ) 1, , Non-Executive Directors Ian Cockerill Roger Liddell Dermot Coughlan Nina Shapiro Murray John Li Zhimin Cui Jurong Former Directors Alan Watling 900 Bonus pool 4 1,500 Total 6, ,644 6,426 1 Appointed during the year as Chief Financial Officer, though not a Director, and this information is included for completeness of disclosure. 2 Includes $586,000 pay in lieu of notice. 3 Includes $703,000 pay in lieu of notice. 4 The Bonus pool accrual was reversed in. The Company did not make any pension contributions for any of the Directors. Bernard Pryor and Matthew Hird received 20% of their basic salary as shares. Share Options The following table shows the Directors interests in share options, changes to those interests during the year and the charge to the Company s income statement in respect of those share options: Grant date No. of options Option price/ share Vested at 31 Dec Total outstanding at 31 Dec Exercised during year Lapsed during year Forfeited/ vested during year Vested at 31 Dec Total outstanding at 31 Dec Charge to income statement US$ 000 s Charge to income statement US$ 000 s F Timis ,000,000 50p 5,000,000 5,000,000 5,000,000 5,000, B Pryor ,500, p 2,500, G Bangura ,000,000 50p 1,000,000 1,000,000 1,000,000 1,000,000 3,983 M Hird , p 500, K Calder ,500, p 1,500,000 1,500,000 (334) 697 M Perry ,250, p 833,333 1,250,000 1,250,000 (1,291) 1,405 I Cockerill ,000, p 1,000, R Liddell , p 300, D Coughlan , p 333, , , , D Coughlan , p 500,000 N Shapiro , p 300, M John , p 333, , , , M John , p 500,000 Cui Jurong , p 300, Li Zhimin , p 300, During the Remuneration Committee approved extension to 31 December 2016 of the expiry date of these share options held by Frank Timis and Gibril Bangura. 2 These awards were formally granted on 30 January 2014, however as they had been approved and communicated in (subject to formalisation) accounting requirements require the award to be treated as a event. 3 These awards were replaced by an equivalent number of share options granted on 30 January 2014 as referred to in Note 2. 4 Matthew Hird is Chief Financial Officer though not a Director of the Company, and this information is included for completeness of disclosure

49 47 The options granted on 30 January 2014 are subject to the achievement of year-on-year share price growth of 10%. The options are divided into three equal instalments, and the first vesting date for each instalment is 4 October 2014, 2015 and The options must be exercised by 3 October Performance Share Awards The following table shows the Director s interests in performance share awards, changes to those interests during the year and the charge to the Company s statement of comprehensive income in respect of those awards: Vested in prior years Outstanding at 1 Jan Vested during year Forfeited/ lapsed during year Outstanding at 31 Dec Charge to income statement $000 s Charge to income statement $000 s Miguel Perry 500, , ,000 (977) 562 Alan Watling (former director) 500,000 (9,782) Miguel Perry resigned as a Director on 30 September, and 250,000 performance shares lapsed on that date. In January 2014 the Board approved the vesting of the balance of 250,000 shares and these have been issued. On behalf of the Board Dermot Coughlan Chairman of the Remuneration Committee 30 June 2014 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

50 48 Independent auditor s report to the shareholders of We have audited the Group financial statements of for the year ended 31 December which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and the related notes 1 to 33. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company s members, as a body, in accordance with our engagement letter dated 13 February Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Directors Responsibilities Statement set out on page 41, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with Bermudian Law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the Group financial statements: give a true and fair view of the state of the Group s affairs as at 31 December and of its loss for the year then ended; and have been properly prepared in accordance with IFRSs as adopted by the European Union. Emphasis of matter In forming our opinion, which is not qualified, we have also considered the adequacy of the disclosures made in Note 3 to the financial statements concerning the Group s ability to continue as a going concern. The conditions described in Note 3 indicate the existence of a material uncertainty which may cast significant doubt about the Group s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. Ernst & Young LLP London 30 June 2014

51 49 Consolidated income statement For the year ended 31 December Revenue Cost of sales 7 (656.4) Gross profit Selling and distribution expenses 8 (79.7) General and administrative expenses 8 (50.4) (27.9) Operating profit/(loss) before special items 82.6 (27.9) Special items 8 (152.1) (197.8) Operating loss (69.5) (225.7) Finance income Finance costs 11 (85.9) Imputed interest cost of deferred income 25 (68.9) (39.5) Gain on non-controlling interest put option Loss on derecognition of borrowings 23 (21.1) Impairment of available for sale investments 16 (39.6) Notes (24.5) (Loss)/profit before taxation for the year (94.0) 4.3 Taxation (Loss)/profit after taxation for the year (89.6) 32.1 Attributable to: Equity holders of the parent (90.7) 36.0 Non-controlling interest (3.9) (89.6) 32.1 (Loss)/earnings per share based on profit for the year US cents Basic (loss)/profit 13 (27.37) Diluted (loss)/profit 13 (27.37) Loss per share based on Underlying Profit (Note 5) US cents Basic and diluted loss 13 (24.65) (20.38) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

52 50 Consolidated statement of comprehensive income For the year ended 31 December (Loss)/profit after taxation for the year (89.6) 32.1 Other comprehensive income/(expense): Items that will be reclassified subsequently to profit and loss Loss on available for sale investments 16 (24.6) (26.5) Reclassification of previous loss on available for sale investments Deferred taxation on temporary differences Deferred taxation on available for sale investments Other comprehensive income/(expense) for the year 17.5 (25.7) Total comprehensive (expense)/income for the year (72.1) 6.4 (Expense)/income attributable to: Equity holders of the parent (73.2) 10.3 Non-controlling interest 1.1 (3.9) (72.1) 6.4 Notes

53 51 Consolidated balance sheet At 31 December Notes 31 December 31 December Assets Non-current assets Intangible assets Property, plant and equipment 15 2, ,390.8 Available for sale investments Inventories Deferred tax assets Deposits Total non-current assets 2, ,538.2 Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets 3, ,287.3 Equity and liabilities Equity Share capital Share premium Equity reserves Fair value reserve (11.2) Retained losses (207.4) (116.7) Equity attributable to owners of the parent Non-controlling interest Total equity ,051.5 Non-current liabilities Interest-bearing loans and borrowings Deferred income Provisions Total non-current liabilities 1, Current liabilities Interest-bearing loans and borrowings Trade and other payables Deferred income Non-controlling interest put option Provisions Total current liabilities 1, ,400.2 Total liabilities 2, ,235.8 Total equity and liabilities 3, ,287.3 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The financial statements were approved by the Board on 30 June 2014 and were signed on its behalf by: Bernard Pryor Chief Executive Officer Matthew Hird Chief Financial Officer

54 52 Consolidated statement of cash flows For the year ended 31 December Operating cash flow before working capital changes (180.5) Increase in inventories (29.4) (4.6) Increase in trade and other receivables (135.4) (25.9) Increase in provisions (Decrease)/increase in trade and other payables (128.4) 51.7 Proceeds from SISG offtake agreement Net cash flow from operating activities (198.2) Cash flows from investing activities Interest received Payments to acquire property, plant and equipment (220.9) (1,029.7) Proceeds received from pre-production sales (commissioning adjustment) Payments to acquire intangible assets (1.3) Net cash outflow from investing activities (168.6) (788.5) Cash flows from financing activities Proceeds of exercise of options and warrants Proceeds from SISG investment Proceeds from convertible bond issue Proceeds from borrowings Repayment of borrowings (69.9) (446.5) Interest paid and costs of financing (69.0) (68.8) Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents (238.9) Net foreign exchange difference (0.6) (0.4) Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Notes

55 53 Consolidated statement of changes in equity For the year ended 31 December Share capital Share premium account Attributable to equity holders of the parent Equity reserves Fair value reserves Retained losses Noncontrolling interest As at 1 January 3.3 1, (152.7) Profit/(loss) for the year (3.9) 32.1 Fair value movements on available for sale investments (26.5) (26.5) (26.5) Deferred taxation on available for sale investments Total comprehensive income (25.7) (3.9) 6.4 Allotments during the year Transaction cost equity issues (2.6) (2.6) (2.6) Share-based payments (1.2) (1.2) (1.2) Reserves transfer options 6.9 (6.9) Reserves transfer warrants 1.0 (1.0) Initial recognition of noncontrolling interest (139.7) (139.7) As at 31 December (11.2) (116.7) ,051.5 Total Total STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS As at 1 January (11.2) (116.7) ,051.5 Profit/(loss) for the year (90.7) (90.7) 1.1 (89.6) Loss on available for sale investments (24.6) (24.6) (24.6) Reclassification of previous loss on available for sale investments Deferred taxation on temporary differences Total comprehensive income (90.7) (73.2) 1.1 (72.1) Allotments during the year Remeasurement of warrants Share-based payments (0.8) (0.8) (0.8) Reserves transfer warrants 0.1 (0.1) As at 31 December (207.4)

56 54 Notes to the financial statements For the year ended 31 December 1. Corporate information (the Company ) is a public limited company listed on the Alternative Investment Market ( AIM ) of the London Stock Exchange. The registered office of the Company is domiciled in Bermuda and the address is at Victoria Place, 31 Victoria Street, Hamilton HM10, Bermuda. The Group comprises, the ultimate Parent Company, and its consolidated subsidiaries. The consolidated financial statements of (the ultimate Parent Company) and all its subsidiaries (the Group ) were issued in accordance with a Directors resolution on the 30 June The principal activities of the Group are the production and sale of iron ore and the operation of mining and infrastructure assets in Sierra Leone. The principal subsidiaries of the Group are listed in Note 32 below. 2. Accounting policies 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ( IFRS ) and interpretations issued by the International Financial Reporting Interpretations Committee ( IFRIC ), as issued by the International Accounting Standards Board ( IASB ) and adopted by the European Union ( EU ) as they apply to the financial statements of the Group for the year ended 31 December. In line other UK listed companies reporting under IFRS and as permitted under IAS 1 ( Presentation of Financial Statements ), the Group has adopted the approach of presenting its consolidated income statement and consolidated statement of other comprehensive income as separate primary statements to assist the users of the financial statements. (a) Going concern The Directors have prepared these consolidated financial statements on the assumption that the Group is able to continue as a going concern (please refer to Note 3 for further details). (b) Accounting convention The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The consolidated financial statements are presented in US dollars and all values are rounded to the nearest millions except when otherwise indicated. (c) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and all its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exist where the Company owns more than one half of the voting rights unless it can be demonstrated that this does not constitute control. Any noncontrolling interests in the net assets of consolidated subsidiaries are identified separately from the Company s net assets. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated on consolidation. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

57 55 2. Accounting policies continued (d) New and amended standards and interpretations The accounting policies adopted are consistent with those of the previous financial year. The following new and amended IFRS and Interpretations have the following effective dates and related impacts on the Group: Effective Impact on the Group IFRS 7 Financial Instruments: Disclosures (Amendments) 1 January No impact IFRS 9 Financial Instruments: Classification and Measurement 1 January Expect no impact IFRS 10 Consolidated Financial Statements 1 January 2014 Expect no impact IFRS 11 Joint Arrangements 1 January 2014 Expect no impact IFRS 12 Disclosure of Involvement With Other Entities 1 January 2014 Expect no impact IFRS 13 Fair Value Measurement 1 January No impact IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income 1 July No impact IAS 19 Employee Benefits Amendment 1 January No impact IAS 27 Separate Financial Statements Amendment 1 January 2014 Expect no impact IAS 28 Investments in Associates and Joint Ventures Amendment 1 January 2014 Expect no impact IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1 January See below IFRIC 21 Levies 1 January 1 No impact 1 These standards have not yet been endorsed by the EU, therefore they have not been applied by the Group. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective 1 January ) The Interpretation only applies to stripping costs incurred during the production phase of a surface mine (production stripping costs). Costs incurred in undertaking stripping activities are considered to create two possible benefits the production of inventory in the current period, and/or improved access to ore to be mined in a future period. Production stripping costs are to be capitalised as part of an asset, if an entity can demonstrate that it is probable future economic benefits will be realised, the costs can be reliably measured and the entity can identify the component of an ore body for which access has been improved. This asset is to be called the stripping activity asset. Where costs cannot be specifically allocated between the inventory produced during the period and the stripping activity asset, the Interpretation requires an entity to use an allocation basis that is based on a relevant production measure. The Directors consider the impact of IFRIC 20 to be immaterial to the consolidated financial statements. 2.2 Significant accounting judgements, estimates and assumptions The preparation of the Group s consolidated financial statements requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on the Directors experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes would differ from these estimates if different assumptions were used and different conditions existed. In particular, the Group has identified the following areas where significant judgements, estimates and assumptions are required, and where actual results were to differ, may materially affect the financial position or financial results reported in future periods. Further information on each of these and how they impact the various accounting policies is located in the relevant Notes to the consolidated financial statements. (a) Key judgements In the process of applying the Group s accounting policies, the Directors have made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements: Commissioning of assets and production start date The Directors have deemed the Tonkolili project and related infrastructure substantially complete and ready for its intended use from the beginning of January. The Directors have assessed each stage of the asset under construction to determine when it moves into the production stage, this being when the asset is substantially complete and ready for its intended use. Some of the criteria used to identify the production start date included, but are not limited to: ability for infrastructure to deliver substantial tonnage of iron ore from mine to ship; and ability to produce iron ore in saleable form and within specifications. When a mine development/construction project moves into the production stage, the capitalisation of certain mine development/ construction costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to asset additions or improvements, mine development or mineable reserve development. It is also at this point that depreciation/amortisation commences. On 1 January, the capitalisation of certain mine development/construction costs ceased and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to asset additions or improvements, mine development or mineable reserve development. It is also at this point that depreciation/amortisation commenced and revenues were recognised in the consolidated income statement.

58 56 Notes to the financial statements continued For the year ended 31 December 2. Accounting policies continued During, the Group s iron ore infrastructure and mining assets in Sierra Leone were still undergoing commissioning. The mine was processing iron ore, and sales had occurred during this commissioning period. The ore stockpile was held as inventory at the end of the year. Commissioning costs were capitalised into assets under construction after deducting the net proceeds from selling iron ore. Trade receivables were recognised for amounts receivable at the end of the year for iron ore sales. Recovery of deferred income tax assets Judgement is also required in determining whether deferred income tax assets are recognised in the consolidated balance sheet. Deferred income tax assets, including those arising from unutilised tax losses, require the Directors to assess the likelihood that the Group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred income tax assets. Assumptions about the generation of future taxable profits depend on the Directors estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions) and judgement about the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Group to realise the net deferred income tax assets recorded at the reporting date could be impacted. In addition, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods (please refer to Note 12 for further details). Intangibles exploration and evaluation expenditure The application of the Group s accounting policy for exploration and evaluation expenditure requires judgement in determining whether future economic benefits will arise either from future exploitation or sale or where activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The determination of a Joint Ore Reserves Committee ( JORC ) resource is itself an estimation process that requires varying degrees of estimation depending on sub-classification and these estimates directly impact the point of deferral of exploration and evaluation expenditure. The deferral policy requires the Directors to make certain estimates and assumptions about future events or circumstances, in particular whether an economically viable extraction operation can be established. Estimates and assumptions made may change if new information becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of expenditure is unlikely, the amount capitalised is written off in the consolidated income statement in the period when the new information becomes available. Exploration and evaluation assets are carried at historical cost less any impairment losses recognised (please refer to Note 14 for further details). Contingencies By their nature, contingencies will only be resolved when one or more uncertain future events occur or fail to occur. The assessment of the existence, and potential quantum, of contingencies inherently involves the exercise of significant judgement and the use of estimates regarding the outcome of future events. The Group is involved in a number of legal cases and judgement is required as to whether a provision or a contingent liability should be recognised based on the Directors best assessment of the outcome of each legal case. Impairment of assets The Group assesses each asset or cash generating unit ( CGU ) every reporting period to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions such as long-term commodity prices (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, closure and rehabilitation costs, exploration potential, reserves and operating performance (which includes production and sales volumes). These estimates and assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or CGUs (please refer to Notes 8 and 15 for further details). (b) Key estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Determination of ore resources and useful lives of property, plant and equipment Ore resource estimates relate to the amount of iron ore that can be economically extracted from the Group s mine. In order to estimate resources, assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. The Group estimates its ore resources based on information compiled by competent persons as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December (the JORC code).

59 57 2. Accounting policies continued In assessing the life of the mine for accounting purposes, resource estimates are only taken into account where there is a high degree of confidence of economic extraction. Since the economic assumptions used to estimate resources change from period to period, and as additional geological data is generated during the course of operations, estimates of resources may change from period to period. Changes in reported resources may affect the Group s financial results and financial position in a number of ways, including the following: asset carrying values may be affected due to changes in estimated future cash flows; depreciation, depletion and amortisation charged in the income statement may change where such charges are determined by the unit of production basis, or where the useful economic lives of assets change; decommissioning and environmental restoration provisions may change where changes in estimated reserves affect expectations about the timing or cost of these activities; and the carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of tax benefits. There are numerous uncertainties inherent in estimating ore resources, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of resources and may, ultimately, result in resources being revised. For property, plant and equipment depreciated on a straight-line basis over its useful economic life, the appropriateness of the assets useful economic life is reviewed at least annually and any changes could affect prospective depreciation rates and asset carrying values. Mine rehabilitation provision The Group recognised a mine decommissioning and restoration provision as at 30 June and has assessed the provision at 31 December. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate amount payable. Provision calculations assume a discount rate of 10% and inflation of 6%. Decommissioning and restoration costs are provided at the present value of the expenditures expected to settle the obligation, using estimated cash flows based on current prices over the assumed life of the mine of 40 years. The provision at the reporting date represents the Directors best estimate of the present value of the future rehabilitation costs required. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Put option over non-controlling interest The Group entered into a put option over a non-controlling interest (please refer to Note 25 for further details). Under IFRS, equity is defined as where the Group has the unconditional right to avoid cash payments, regardless of probability of the condition. The Directors assessed the terms of the put option and determined that IAS 32 takes precedence over IAS 27 Consolidated and Separate Financial Statements (2008) : on this basis, the shares held by the non-controlling party are not recognised as a non-controlling interest within equity. The put option was initially measured at the present value of the redemption amount and subsequently accounted for as a financial liability under IAS 39 Financial Instruments: Presentation. As a result, the put option is subsequently remeasured at each reporting period. This valuation requires the Group to estimate the fair value of the amount that would be payable to Shandong Iron and Steel Group ( SISG ) in the unlikely event that Frank Timis voluntarily resigns from the Board, and SISG exercises its option to sell back its interest, and therefore, is subject to uncertainty. Refer to Note 25 for further details. Deferred income The Group has entered into a discounted offtake agreement. The amount initially recognised represents the present value of the iron ore offtake discount that SISG will receive under the agreement: the estimate required determination of the most appropriate inputs including volume, iron ore prices and discount rate. The assumptions and models used for estimating the present value of the offtake discount are disclosed in Note 25. Fuel misappropriation As disclosed in Note 8, the Directors best estimate for misappropriated fuel of $18.0m was recorded in within the consolidated income statement. This estimate has been based on extrapolation procedures and has therefore involved the use of estimates. The Directors have taken a number of measures to mitigate the risk of further such losses occurring, such as employing a specialised in-house fuel consumption control team. The investigation is ongoing, however in there have been no developments which have led to an amendment to the Directors original estimate. Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note Summary of significant accounting policies (a) Foreign currencies The consolidated financial statements are presented in US dollars which is the Parent Company s functional currency representing the primary economic environment in which it operates and the Group s presentation currency. Transactions in foreign currencies are initially recorded in the functional currency at the respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange ruling at the reporting date. All exchange differences are taken to the profit or loss, should specific criteria be met. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

60 58 Notes to the financial statements continued For the year ended 31 December 2. Accounting policies continued (b) Exploration and evaluation assets Exploration costs are capitalised as exploration and evaluation assets until a decision is made to proceed to development. Related costs are then transferred to assets under construction. Before reclassification, exploration costs are assessed for impairment and any impairment loss recognised in the consolidated income statement. Subsequent development costs are capitalised under assets under construction, together with any amounts transferred from exploration and evaluation assets. (c) Intangibles Software Software is shown at historical cost less accumulated amortisation and impairment losses. The initial cost of an asset comprises its purchase price and any consultancy costs directly attributable to bringing the asset into operation together with any incidental cost of purchase. Software amortisation is charged to the consolidated income statement on a 20% straight-line basis. (d) Property, plant and equipment and assets under construction Initial measurement Plant and equipment is shown at cost less accumulated depreciation and impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, any incidental cost of purchase and borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Directly attributable costs include employee benefits, professional fees and costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling iron ore produced while bringing the asset to the condition intended by the Directors. Capitalised borrowing costs include those that are directly attributable to the construction of mining and infrastructure assets. Property, plant and equipment relate to land, buildings, plant, machinery, fixtures and fittings and are shown at historical cost less accumulated depreciation and impairment losses. Assets under construction are capitalised as a separate component of property, plant and equipment. On completion, the cost of construction is transferred to the appropriate class of assets. Assets under construction are not depreciated. Depreciation Mining assets are amortised over the estimated life of the commercial mineral resources on a unit of production basis. Infrastructure assets and any other assets are depreciated on a straight-line basis over the expected useful lives of the assets concerned. The depreciation rates are as follows: Plant and machinery Fixtures and fittings Vehicles Buildings Freehold land 5 38 years 3 5 years 3 years 5 38 years nil Subsequent expenditure is capitalised when it is probable that future economic benefits from the use of the asset will be increased. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. Assets that are replaced and have no future economic benefit are derecognised and expensed through profit or loss. Repairs and maintenance which neither materially add to the value of assets nor appreciably prolong their useful lives are charged to the consolidated income statement. Gains/(losses) on the disposal of fixed assets are credited/(charged) to the consolidated income statement. The gain or loss is the difference between the net disposal proceeds and the carrying amount of the asset. The asset s residual values, useful lives and methods of depreciation are reviewed at each reporting period, and adjusted prospectively if appropriate. Assets under lease Asset lease arrangements are classified as operating leases, where they do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item. Operating lease payments are charged to the income statement on a straight-line basis over the lease term. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds e.g. arrangement fees. Early repayment of borrowings, specifically for reasons of refinancing do not qualify for capitalising as borrowing costs under IAS 23 Borrowing Costs and are recognised as a loss on derecognition in the consolidated income statement.

61 59 2. Accounting policies continued (e) Impairment The carrying values of property, plant and equipment, mining assets, capitalised exploration and evaluation expenditure and intangible assets are reviewed for impairment if there is an indication that the carrying amount may not be recoverable. If any indication of impairment exists, the impairment is assessed at the level of cash-generating units which, in accordance with IAS 36 Impairment of Assets, are identified as the smallest identifiable group of assets that generates largely independent cash inflows from other assets. Impairment reviews for exploration and evaluation costs are carried out on a project by project basis, as each project has the potential to be an economically viable cash generating unit. When an impairment review is undertaken the recoverable amount of the asset is assessed. If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the consolidated income statement so as to reduce the carrying amount to its recoverable amount. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of the recoverable amount. Calculation of recoverable amount The recoverable amount of assets is the higher of their value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Reversals of impairment A previously recognised impairment loss is reversed, other than on goodwill, only if there has been a change in the events and circumstances used to determine the asset s recoverable amount. Reversals of impairment are recognised in the consolidated income statement. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Impairment of exploration and evaluation costs Impairment reviews for exploration and evaluation costs are carried out on a project by project basis, as each project has the potential to be an economically viable cash generating unit. An impairment review is undertaken when indicators of impairment arise but normally when one of the following conditions apply: unexpected geological occurrences render a deposit uneconomic; title to an asset is compromised; variations in commodity prices render the project uneconomic; variations in the currency of operation; or variations to the fiscal and tax legislation in the country of operation. (f) Inventories Inventories are valued at the lower of cost of production and net realisable value. Work in progress stockpiles represent ore that has been extracted and is available for further processing. The cost of producing iron ore is accounted for on a weighted average basis and includes labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore, and production overheads. Quantities of ore stockpiles are assessed through surveys and assays. The cost of inventory for: raw material and consumable stores are valued at cost on a first-in-first-out ( FIFO ) basis; and work in progress and finished goods are valued at weighted average cost which includes an appropriate proportion of depreciation, labour costs, materials and contractor expenses which are directly attributable to the extraction and processing of ore and overheads based on normal capacity. The net realisable value is based on estimated selling price less any further costs to be incurred to completion and disposal. (g) Deferred income Deferred income relates to the discounted offtake agreement with Shandong Iron and Steel Group ( SISG ), which was executed on 30 March, as described in Note 25. The Group measures deferred income at its present value when the time value of money is significant. Therefore the following two components are treated separately: the initial estimate of the nominal amount is released to profit or loss for deliveries that qualify for discounts up to 15%, depending on the benchmark FOB iron ore price in accordance with the offtake agreement; and the difference between the nominal amount and present value is unwound to the consolidated income statement as a finance cost. The Group has also entered into a prepaid sales agreement with a customer, unrelated to SISG, which will be released as revenue in line with shipments in The valuation of the deferred income requires the Group to make estimates about the expected future benchmark FOB iron ore price and future deliveries, which may differ from actual quantities and discounts given in any particular year. (h) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The provisions are discounted, where the effect of discounting is material. Therefore, the net present value of provisions, using a pre-tax discount rate, is charged to the income statement. The amortisation of the discount is recorded as a financing cost.

62 60 Notes to the financial statements continued For the year ended 31 December 2. Accounting policies continued (i) Revenue recognition Revenue comprises the sale of iron ore invoiced to third party customers. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for iron ore provided in the normal course of business, net of discounts and freight. All sales are made under Free on Board ( FOB ) terms. Under FOB terms the title (risk and rewards of the ownership) passes to the customers on the bill of lading date, which is when revenue is recognised initially. If the sales agreement allows for an adjustment of the sales price based on survey of the iron ore by the customer, the revenue is initially recognised based on the bill of lading product specification and adjusted subsequently. All sales agreements for iron are provisionally priced, (i.e. the final invoice is subject to a final adjustment at the date when the product reaches the customer s port), based on the FOB price. At each reporting date, the provisionally priced metal sales are repriced using forward prices, with adjustments (both gains and losses) being recorded in revenue in the income statement and in trade receivables or trade payables in the balance sheet. Revenue also includes the release of deferred income. Refer to Note 2.3(g) and Note 25 for more detail. Revenue is only recognised on individual sales when all of the following criteria are met: The significant risks and rewards of ownership of the product have been transferred to the buyer. Neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained. The amount of revenue can be measured reliably. It is probable that the economic benefits will flow to the Group. The costs incurred or to be incurred in respect of the sale can be measured reliably. These conditions are generally satisfied on the bill of lading date. (j) Finance income Interest income comprises of interest income on cash and cash equivalents and is recognised as it accrues during the year. (k) Finance costs Finance costs comprise interest expenses on borrowings, the unwinding of interest cost on provisions, foreign exchange losses and warrants expenses issued as part of financing agreements. (l) Share-based payments The Group issues equity-settled share-based awards to certain Directors, officers, employees and suppliers. The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. Options and warrants The cost of equity-settled transactions is recognised, together with a corresponding increase in equity reserves, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group s best estimate of the number of equity instruments that will ultimately vest. The expense or credit for the year in the consolidated income statement represents the movement in cumulative expense recognised as at the beginning and end of that year and is recognised in employee benefits expense. No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied. In valuing equity-settled share awards, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions). Where the terms of an equity-settled transaction award are modified, the minimum expense recognised is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognised for any modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, no further expense is recognised for that award. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. Performance shares The Group issues performance shares on the completion of certain conditions being met. The Company has entered into agreements to award senior executives with shares in the Company based on certain performance conditions being met. Conditions include the completion of certain feasibility studies and the achievement of various iron ore production targets. The grant-date fair value of performance shares is charged to the consolidated income statement over the period between the date of grant and the date the performance conditions are expected to be met.

63 61 2. Accounting policies continued (m) Taxation Taxation for the year comprises current and deferred tax. Taxation is recognised in the consolidated income statement except to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in consolidated statement of comprehensive income. Current tax Current tax expense is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is provided using the balance sheet method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. (n) Financial instruments: initial recognition and measurement a) Financial assets The Group s financial assets include available for sale investments, trade and other receivables, and cash and cash equivalents. Available for sale investments Available for sale financial assets include investments in listed equities, that are neither classified as held for trading nor designated at fair value through profit or loss, and are initially measured at fair value. Changes in fair values of investments available for sale are recorded through fair value reserves, whilst dividend income is recorded in the consolidated income statement for the year. When the fair value of an available for sale investment declines, the Directors make assumptions about the decline in value to determine whether an impairment should be recognised in the consolidated income statement. The Directors assess impairment based on significant or prolonged fair value declines in comparison to the original cost, where the Directors consider significant to be a fair value decline of approximately 30% and prolonged to be a sustained decline of greater than one year. Trade and other receivables Trade and other receivables are stated at amortised cost less provision for doubtful debts. Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Cash and cash equivalents Cash and cash equivalents are measured at fair value, based on the relevant exchange rates at the balance sheet date. Cash and cash equivalents comprise cash, cash at hand and short-term deposit amounts with original maturity of less than three months. For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Impairment The Group assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (a loss event) and that loss event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. b) Financial liabilities The Group s financial liabilities include trade and other payables, a put option over non-controlling interest, interest bearing loans and borrowings. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, less directly attributable transaction costs.

64 62 Notes to the financial statements continued For the year ended 31 December 2. Accounting policies continued Trade and other payables Trade and other payables are non-derivative financial liabilities that are not quoted in an active market. Put option over non-controlling interest The put option is initially measured at the present value of the redemption amount and subsequently measured at fair value. The put option has been valued using an enterprise value model, which reflects the Directors interpretation of the shareholders agreements with SISG. This valuation requires the Group to make assumptions related to the amount that would be payable to SISG in the unlikely event that Frank Timis voluntarily resigns from the Board, and SISG exercises its option to sell back its interest. The fair value calculation has key assumptions that include the utilisation of the quoted share price in estimating the market capitalisation of the mine, rail and port and power subsidiaries and an estimated significant influence premium component to reflect SISG s 25% shareholding in the mine, rail and port and power subsidiaries. As a result there is estimation uncertainty related to subsequent remeasurements. Any movement is recorded through the consolidated income statement and are categorised within Level 3 of the fair value hierarchy. For this analysis, management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant agreements. Management also compares each of the changes in the fair value with relevant external sources to determine whether the change is reasonable. Interest-bearing loans and borrowings Interest-bearing loans and borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost using the effective interest rate ( EIR ) method. The fair value implies the rate of return on the debt component of the facility. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in profit or loss. Convertible bonds are calculated in two components, a liability, which is valued at the present value of future interest payments and principal using the effective interest rate, and an equity component, which is the residual amount of funds received. c) Fair value of financial instruments The following methods and assumptions are used to estimate the fair values: Fair value of available-for-sale investments is derived from quoted market prices in active markets; Initial fair value of interest-bearing borrowings is normally the transaction price, i.e. the fair value of the consideration received. When part of the consideration is for something other than the loan, the fair value is estimated using a valuation technique, as described in Note 23; Methods and assumptions used to estimate the fair value of the put option over non-controlling interest is disclosed above; For disclosure purpose only, fair value of convertible bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, such as loans and other financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities; and Cash and short-term deposits, trade and other receivables, trade and other payables and other current liabilities approximate to their carrying amounts largely due to the short-term maturities of these instruments. Management also compares each of the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. 3. Going concern The Interim Results for the six-month period to 30 June included disclosure of a material uncertainty as regards the Group s ability to sustain production and sales in line with forecast. The Group has conducted a thorough review of its capacity to produce and export ore and has taken action to support and enhance that capacity. This includes the procurement of a fourth transshipper, remediation work on Plant 1B and stockpiling of iron ore lump product to fulfil demand during the wet season. Since these activities were initiated, export volumes in the period since December have been consistently in line with forecast. Given the enhancements to capacity and the track record of export sales, the Directors believe that the sustainability of production and sales is no longer a material uncertainty as was disclosed in the Interim Results. The Group has prepared a cash flow forecast based on our best estimate of key variables including volumes, price, operating costs, capital expenditure and ongoing legal cases (as discussed in note 27) through to December 2015 that supports the conclusion of the Directors that there is sufficient funding available to meet the Group s anticipated cash flow requirements to this date. This conclusion is subject to the successful refinancing of the pre-export finance facility, as discussed further below. In April the Group put in place a $250.0m pre-export finance facility and as at 31 December this facility was fully drawn. The pre-export finance facility requires repayments of $10.4m per month from March 2014 for 24 months. Repayments have been made in full for March to June However, given current iron ore prices, and export volumes that are still ramping up to the planned long-term run-rate, the Group would not be able to sustain these monthly repayments throughout the forecast period. The Group is therefore in the process of replacing the pre-export finance facility with longer-term funding from the debt capital markets and bank financing. Such funding would stabilise the Group s financial position, including the provision of additional working capital, and enable it to implement the optimal solution for processing friable haematite and hence secure several further years of cash generation.

65 63 3. Going concern continued The Directors acknowledge that the Group also faces ongoing risks, the most significant of which is exposure to volatile iron ore prices. The most recent consensus of equity analyst forecasts indicates a price for iron ore that would allow the Group to continue to meet its funding obligations during the forecast period on the assumption that the pre-export finance facility is refinanced. Iron ore prices occasionally dip significantly, as they have done at the present time. Historically though, such dips have only lasted for a few months at a time. When there is such a fall in iron ore prices below the levels adopted for a forecast period, the Directors believe that they have a number of options available to them, such as deferring capital expenditure and actively managing working capital, which would allow the Group to meet its cashflow requirements through this period. The Directors believe that the Group s cash flow forecast has been prepared on realistic assumptions. However, until the refinancing of the pre-export finance facility has been completed, there is a material uncertainty that may cast significant doubt over the Group s ability to continue as a going concern. Nevertheless, after making appropriate enquiries and considering this material uncertainty, the Directors are confident that they have several options by which this facility can be refinanced, and have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis of accounting in preparing these financial statements. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group was unable to continue as a going concern. The Directors are also of the view that, upon the successful refinancing of the pre-export finance facility, the material uncertainty that may cast significant doubt over the Group s ability to continue as a going concern will no longer be applicable. 4. Segment information The Group is managed as a single operating segment which has developed a mine and related infrastructure. Commercial production was achieved from the beginning of January. In accordance with IFRS 8: Operating Segments, the Group presents its results in a single segment which are disclosed in the consolidated income statement. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The Group does not have any significant non-current assets that are located outside Sierra Leone. The Group generates all revenues from external customers within Sierra Leone. Information on the revenues derived from external customers is provided in Note Non-GAAP performance indicators The Directors monitor the financial performance and financial position of the Group based on a number of key performance indicators including EBITDA, C1 production cash costs, All-in cash costs, Underlying Profits and net financial indebtedness. (a) EBITDA The Group presents EBITDA because it believes that EBITDA is a useful measure of the profitability of the Group and is a proxy for cash earnings from current trading performance. The Group calculates EBITDA as earnings/(loss) before tax, finance costs, depreciation, impairment and amortisation and special items. Loss before non-operating items and taxation (69.5) (225.7) Depreciation Amortisation Special items EBITDA (26.5) (b) Underlying Profits Underlying Profits is an alternative earnings measure, which the Directors believe provides a more consistent measurement for comparing the underlying financial performance of the Group s operations. Underlying Profits is the profit/(loss) for the year excluding special items, revaluation of the SISG put option, loss on derecognition of borrowings and their resultant tax effect. (Loss)/profit attributable to equity holders of the parent (90.7) 36.0 Gain on non-controlling interest put option (169.8) (288.4) Impairment of available for sale investments 39.6 Special items Non-controlling interest of special items (1.1) (1.1) Tax effect from above items (11.8) (32.7) Loss on derecognition of borrowings 21.1 Underlying Profits attributable to equity holders of the parent (81.7) (67.3)

66 64 Notes to the financial statements continued For the year ended 31 December 5. Non-GAAP performance indicators continued (c) C1 production cash cost and All-in cash costs C1 production cash cost represents the cash costs of the mining, railway and port operations divided by wet tonnes shipped and excludes depreciation and amortisation. All-in cash cost represent the cash costs of production (mining, railway and port) selling, general and administration expenses and sustaining and optimising capital expenditure divided by wet tonnes shipped. Cost of sales (656.4) Add: Depreciation within cost of sales C1 production cash cost (539.5) Selling costs (79.7) General and administrative expenses (50.4) Add: Depreciation within general and administrative expenses 2.7 Add: Amortisation of intangible assets 0.7 Sustaining and optimising capital expenditure (50.4) All-in cash costs (716.6) Ore shipped (wet tonnes) 12,128,348 C1 production cash cost per tonne ($) All-in cash costs per tonne ($) (d) Net financial indebtedness Net financial indebtedness as defined by the Group comprises cash and cash equivalents and loans and borrowings. Cash and cash equivalents Current borrowings (263.8) (253.6) Non-current borrowings (571.9) (327.7) Net financial indebtedness (473.3) Revenue Revenue by product: All in Fines Lump blend Total revenue All export sales of iron ore in were delivered to China. Revenue by customer: During the year export iron ore sales were made to the following customers: Shandong Iron and Steel Group China Railway Materials Commercial Corporation Other customers Total revenue In iron ore sales were credited to assets under construction, whereas from January iron ore sales were recorded in the consolidated income statement.

67 65 7. Cost of sales Contractors Consumables Depreciation of mine, railway and port assets Personnel costs 82.5 Travel and entertainment 10.3 Freight costs 9.6 Maintenance and repairs 6.3 IT and communications 6.0 Consultants 4.8 Changes in inventories (7.7) Other 11.9 Total cost of sales Cost of sales by function: Mine Rail 55.3 Port Central services Depreciation of mine, railway and port assets Total cost of sales STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS In, cost of sales were capitalised to assets under construction. 8. Net operating expenses Selling and distribution expenses Sales commissions 44.5 Government royalties 24.9 Demurrage 10.3 Total selling and distribution expenses 79.7 Demurrage is shown net of income from the port of $6.8m during the year (: $nil) Selling and distribution costs were capitalised to assets under construction in. General and administrative expenses Personnel costs Travel Insurance Office costs Depreciation of property, plant and equipment Amortisation of intangible assets Share-based payments expense (0.8) 5.1 Other operating charges Total general and administrative expenses Special items 1 Penalties for SISG warranty breach Onerous offtake contracts and contractor claims Transaction costs and other professional fees Adviser s fees claim Impairment of property, plant and equipment (Note 15) 25.1 Impairment of exploration expenditure (Note 14) 7.6 Provision for doubtful debts 7.4 Derecognition of assets under construction (Note 15) 41.5 Loss due to fuel misappropriation 18.0 Total special items Special items are significant items of income and expense, presented separately, due to their non-recurring nature or the expected infrequency of the events giving rise to them.

68 66 Notes to the financial statements continued For the year ended 31 December 8. Net operating expenses continued Penalties for SISG warranty breach The purchase and sale agreements with SISG guarantee that the Group s Tonkolili operation would reach a production rate of 12Mtpa by the start of. This production rate was not achieved until 1 May for which SISG claimed compensation. The agreements also contain warranties by the Group about the business and finances of the project companies as at the closing of the transaction, and certain breaches have been identified and claimed by SISG. The Group has reached a commercial settlement of these claims with SISG, which is in full and final settlement of all production guarantees, and all warranty claims except those relating to environment and tax which have a longer limitation period. A penalty expense of $46.3m (31 December : $51.1m) has been recognised, which represents the agreed settlement amount for the year. Onerous offtake contracts and contractor claims Expenses for onerous offtake contracts and contractor claims in of $19.7m include compensation charges for an inability to fulfil several offtake contracts. In, $50.0m relates to compensation charges for an inability to fulfil several offtake contracts and $5.0m related to a contractor claim relating to settlement of a construction contract. Transaction costs and other professional fees Transaction costs and other professional fees incurred in includes amounts relating to the proposed strategic investment by Tianjin Materials and Equipment Group Corporation ( Tewoo ) and also the finalising of fees in relation to the investment made by SISG. In, these fees included only amounts in relation to the investment made by SISG. Adviser s fees claim An expense of $37.0m has been recognised in relating to a claim for financial adviser s fees relating to fund raisings and transactions in prior years (refer to note 27 for further details). The expense recognised in the consolidated income statement is net of an existing provision of $6.2m relating to this claim which was recognised in. Loss due to fuel misappropriation Misappropriated fuel of $18.0m was the Directors best estimate of the loss incurred from theft of fuel. A certain portion of this amount relates to prior periods but it was impractical to apply retrospective restatement. Net operating expenses include: Auditors remuneration: Audit of the annual financial statements Review of interim financial statements Other non-audit services Key management personnel Emoluments Termination benefits (pay in lieu of notice) 1.3 Forfeitures for performance share awards (1.0) (9.2) Share options (credit)/charge (0.2) 6.9 Social security Key management personnel comprise the Directors and Chief Financial Officer. No Director has retirement benefits accruing to them as a result of their services to the Group. 10. Employee costs Salaries and wages Social security costs Less: Salaries and wages included in cost of goods sold (82.5) Less: Capitalised salaries and wages (94.9) Total personnel costs within general and administrative expenses (Note 8) Total share-based payments (Note 22) (0.8) (1.2) Deductions for capitalised share-based payments 6.3 Share-based payments expense (Note 8) (0.8) 5.1 Employee costs included within general and administrative expenses

69 Employee costs continued The number of employees at the various mining and infrastructure at the end of the year was 3,894 (: 2,796). No wages and salaries costs were capitalised in the year (: $94.9m). No share-based payments charge was capitalised in. In, a share-based payments charge of $6.3m was credited to assets under construction. This comprises a capitalised share-based payment expense of $5.7m less a credit of $12.0m for forfeitures and lapses of project-related share-based awards. 11. Finance costs Borrowing costs 75.5 Gain on related party discounted interest rate (Note 23) (4.4) Financing fees 11.1 Warrants costs (Note 22) 2.1 Unwinding of discount on restoration and decommissioning provision 1.6 Total finance costs 85.9 In, finance costs were capitalised to assets under construction. Borrowing costs relate to the effective interest rate incurred on facilities referred to in Note 23. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Financing fees include political risk insurance for facilities secured on the Group s assets in Sierra Leone, legal fees incurred in relation to finance raising activities and bank charges. 12. Taxation Analysis of credit for the year: Deferred tax Current year Tax adjustments in respect of prior years 3.2 (1.8) Effect of changes in tax rates (1.2) Deferred tax credit The effective corporate income tax for the year is lower than the statutory rate of corporation tax in the UK of 23.3% (: 24.5%). A reconciliation between the tax credit reflected in the consolidated income statement and the expected tax credit based on the statutory rate of corporation tax for the year is shown below: (Loss)/profit on ordinary activities before tax (94.0) 4.3 Group s domestic tax rate is as follows: (Loss)/profit before tax multiplied by the standard rate of UK corporation tax 23.3% (: 24.5%) 21.9 (1.1) Effects of: Net income not taxable Expenses not deductible for tax purposes (34.4) (21.8) Effect of changes in tax rates (1.1) Derecognition of previously recognised deferred tax assets (9.0) Recognition of previously unrecognised temporary differences 0.6 Tax adjustments in respect of prior years 3.2 (1.8) Losses not recognised (16.4) (11.4) Effect of overseas tax rates (1.0) (5.6) Total taxation credit

70 68 Notes to the financial statements continued For the year ended 31 December 12. Taxation continued Deferred income tax asset With the Group entering production phase in, the Directors have increased confidence in its ability to generate taxable profits against which brought forward tax losses may be utilised. This has resulted in an increase to the recognised net deferred tax asset during. The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Deferred income tax assets Property plant and equipment Tax losses Other temporary differences At 1 January Credited/(charged) to the consolidated income statement (3.3) As at 31 December Credited/(charged) to the consolidated income statement (0.2) (4.7) Credited to other comprehensive income As at 31 December Deferred income tax liabilities Property plant and equipment Investments At 1 January Charged/(credited) to the consolidated income statement Credited to other comprehensive income (0.8) (0.8) As at 31 December Charged to the consolidated income statement As at 31 December Net deferred tax asset As at 1 January 65.2 Tax credit recognised in consolidated income statement 4.4 Tax credit recognised in other comprehensive income 2.5 As at 31 December 72.1 Other Total Total Unrecognised tax losses Where the realisation of deferred tax assets is dependent on future profits, losses carried forward are recognised only to the extent that business forecasts predict that such profits will be available. The Group has unrecognised deferred tax assets of approximately $39.8m (: $16.9m) in respect of tax losses that are available indefinitely for offset against future taxable profits. Furthermore, the Group has unrecognised deferred tax assets $0.6m (: $nil) in relation to capital allowances in excess of depreciation and $0.7m (: $nil) in relation to unrealised capital losses on investments held. Change in corporation tax rate United Kingdom Provisions to reduce the rate of corporation tax to 21% with effect from 1 April 2014 and to 20% with effect from 1 April 2015 were substantively enacted on 2 July under the Provisional Collection of Taxes Act Deferred tax balances have therefore been provided for at the 20% rate. Sierra Leone The rate of corporation tax is 25% as provided for in the Group s Mining Lease Agreement and has not changed in the year.

71 (Loss)/earnings per share (a) Basic and diluted earnings per share-based on profit for the year (Loss)/profit for the year attributable to owners of the parent (90.7) 36.0 Basic earnings per share is calculated by dividing the (loss)/profit attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year. Shares Shares Weighted average number of common shares in issue 331,402, ,342,162 Basic (loss)/earnings per share US cents (27.37) Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For share options, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Terms and conditions of share options are disclosed in Notes 20 and 22. Shares Shares Weighted average number of common shares in issue 331,402, ,342,162 Adjustment for share options and warrants 26,236, ,402, ,579,137 Diluted (loss)/earnings per share US cents (27.37) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Where there is a basic loss per share, the dilution effect is ignored. (b) Basic and diluted earnings per share based on Underlying Profits Basic (loss)/earnings per share based on Underlying Profits is calculated by dividing Underlying Profits by the weighted average number of ordinary shares in issue during the year. Underlying Profits (Note 5) (81.7) (67.3) Shares Shares Weighted average number of common shares in issue 331,402, ,342,162 Basic and diluted loss per share based on Underlying Profits US cents (24.65) (20.38) Where there is a basic loss per share, the dilution effect is ignored.

72 70 Notes to the financial statements continued For the year ended 31 December 14. Intangible assets Exploration expenditure Software Cost At 1 January Additions As at 31 December As at 31 December Amortisation and impairment At 1 January Amortisation charge As at 31 December Amortisation charge Impairment charge As at 31 December Net book value At 1 January At 31 December At 31 December The useful lives of exploration and evaluation assets are not determined until transferred to property, plant and equipment and comprise the cost of purchasing mineral exploration licences and certain exploration and evaluation expenditure relating to the Group s mineral licences. The Directors regularly assesses the potential of each mineral licence and write off any deferred exploration expenditure that it believes to be unrecoverable. A review of exploration and evaluation assets at year end resulted in an impairment of $7.6m (: $nil) relating to the write down of the Group s investments in Sierra Leone Gold (SL) Limited, a gold exploration project, which does not form an ongoing part of the Group s core activities. Intangible assets are not pledged as security or held under restriction of title. 15. Property, plant and equipment Plant and machinery Mining assets Land and buildings Fixtures and fittings Assets under construction Cost At 1 January , ,517.4 Additions Disposals (7.4) (7.4) Derecognition of assets under construction (41.5) (41.5) Transfer to/(from) assets under construction (11.4) As at 31 December , ,410.0 Additions Transfer to/(from) assets under construction 1, (2,333.2) As at 31 December 1, , ,662.4 Depreciation and impairment At 1 January Depreciation charge As at 31 December Depreciation charge Impairment charge As at 31 December Net book value At 1 January , ,506.4 At 31 December , ,390.8 At 31 December 1, , ,498.5 Total Total

73 Property, plant and equipment continued Depreciation Less capitalised costs (7.4) Depreciation charge Certain property, plant and equipment is pledged as security over the equipment financing facilities. Refer to Note 23. Impairment The intended use of some of the Group s assets changed in the year and as a result, impairment reviews were performed on these assets. As a result of these impairment reviews, the Group has recognised an impairment charge of $25.1m against certain assets, including a camp at the mine, and certain railway and port infrastructure. Assets under construction On the commencement of production as at 1 January all assets within Assets under construction identified as completed and ready for their intended use were transferred to Property, plant and equipment and depreciation commenced thereafter. Derecognition of assets under construction In rail refurbishment expenditure of $41.5m was derecognised as a result of increased project scoping. Initial refurbishment work of the 45kg/km existing rail was derecognised when a decision was taken to accelerate the replacement upgrade work to 60kg/km which was completed in to support an expansion of the project capacity to 20Mtpa. The Directors have derecognised the initial refurbishment for $nil scrap value. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Capitalised borrowing costs Borrowing costs capitalised during the year were $nil (: $68.8m). Borrowing costs comprise placement fees and interest expense. The effective interest rates of the specific borrowing are used to determine the amount of borrowing costs eligible for capitalisation. Refer to Note 23 for details. Mine restoration and decommissioning provision During the year, the Group recognised a mine restoration and decommissioning provision of $31.5m. This was a non-cash addition, which was capitalised to Mining assets. Refer to Note 26 for details. 16. Available for sale investments Equity securities in Australia Equity securities in UK As at 1 January Share price movement (23.0) (3.9) (26.9) Exchange movement Total fair value movement (22.9) (3.6) (26.5) Total As at 31 December Fair value reversal Impairment (32.2) (7.4) (39.6) Share price movement Exchange movement (0.6) 0.3 (0.3) Loss on available for sale investments (21.4) (3.2) (24.6) As at 31 December Australia Australian equity securities are shares in Cape Lambert Resources Limited. As at 31 December, the percentage holding of Cape Lambert Resources Limited was 18.27% (: 17.71%). United Kingdom Securities in the United Kingdom include Stellar Diamonds plc and Obtala Resources plc. As at 31 December, the percentage holding of Stellar Diamonds plc was 0.33% (: 0.59%) and the percentage holding of Obtala Resources plc was 8.04% (: 8.46%).

74 72 Notes to the financial statements continued For the year ended 31 December 16. Available for sale investments continued Impairment As at 30 June, the Directors deemed Cape Lambert Resources Limited impaired by $32.2m, Obtala Resources Limited impaired by $7.3m and Stellar Diamonds impaired by $0.1m. Each listed investment has significantly decreased in market valuation for a prolonged period and under IAS 39: Financial Instruments: Recognition and Measurement, the Group has recognised an impairment in the consolidated income statement. Since 1 July, the available for sale investments realised a gain of $3.8m (: $26.5m loss), consisting of a share price gain of $4.1m (: $26.9m loss) and a exchange rate loss of $0.3m (: $0.4m gain), which has been credited to the fair value reserve. As a result of these movements, the fair value loss on available for sale investments of $24.6m is offset by recycling of $39.6m to the consolidated income statement for an impairment charge recognised, resulting in comprehensive income of $15.0m for the year. 17. Inventories Non-current Friable haematite stockpiles Current Consumable inventory Work in progress stockpiles Finished goods stockpiles Total Direct Shipping Ore ( DSO ) is mined together with friable haematite which is stockpiled for future processing as part of the Phase II expansion project. Friable haematite stockpiled at the end of the year will not be processed before the commencement of the Phase II expansion project and is therefore classified as non-current. The friable haematite ore is held at cost. Consumable inventory relates to rail ballast, fuel and spare parts used at the mine, rail and port. Movements in inventories of stockpiles in were recorded into cost of sales (: credited to assets under construction) as the project transitioned to the production stage from 1 January. 18. Trade and other receivables Trade receivables Provision for doubtful debt (6.6) Other receivables Provision for doubtful debt (0.8) Prepayments Trade receivables relate to amounts receivable as at 31 December for the sales of iron ore, including $109.7m (: $47.9m) from related parties. The provision for doubtful debt in trade receivables relates to a disputed trade receivable balance that the Group deems is no longer recoverable. The provision for doubtful debt in other receivables relates to a balance due from International Petroleum Limited of $0.8m that the Group deems impaired (please refer to Note 30 for further details). Other receivables includes $1.6m (: $2.7m) due from related parties for the provision of certain AML staff on Pan African Minerals Limited projects and shared London office rental and related expenses for Pan and African Petroleum Limited. (please refer to Note 30 for further details). Due to their short-term maturities, the carrying value of trade and other receivables approximates their fair value.

75 Cash and cash equivalents Restricted cash Cash at bank and in hand Total Restricted cash includes $304.6m (: $560.8m) received from the SISG transaction, which is allocated towards the funding of the Phase II expansion. This restriction is based on the shareholders agreement with SISG, which requires the approval of the Company and SISG for the drawdown of funds. In $25.0m of restricted cash held as at 31 December was released to the Group as the dispute with lenders regarding an early repayment fee on the syndicated loan facility from was resolved. 20. Share capital and reserves (a) Share capital Number of shares Number of shares Authorised Common shares of $0.01 each 500,000, ,000, Preference shares of $0.001 each 100,000, ,000, Issued and fully paid common shares of $0.01 each As at 1 January 331,225, ,945, Allotments during the period 266,668 2,280,306 As at 31 December 331,492, ,225, STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Preference shares are authorised but not issued. (b) Share premium As at 1 January 1,033.3 Share allotments during the year 3.5 Reserves transfer options 6.9 Reserves transfer warrants 1.0 Transaction cost equity issues (2.6) Initial recognition of non-controlling interest (139.7) As at 31 December Share allotments during the year 0.7 Reserves transfer warrants 0.1 As at 31 December Common share allotments during the year were as follows: Share options 41,668 (: 1,780,306) new common shares were issued for consideration of $0.1m (: $1.4m) on the exercise of share options. Warrants 225,000 (: 500,000) new common shares were issued for consideration of $0.6m (: $2.2m) on the exercise of share warrants. Share scheme No new common shares were issued during the year on the achievement of corporate objectives under the Employee Share Scheme (: nil). Refer to Note 22 for details. Total allotments 266,668 (: 2,280,306) shares were issued for consideration of $0.7m (: $3.6m).

76 74 Notes to the financial statements continued For the year ended 31 December 20. Share capital and reserves continued (c) Equity reserves The balance held in equity reserves relates to an equity component of convertible bonds, share-based payments, options and warrants. As at 1 January 83.9 Convertible bond issue 52.9 Issue of warrants 10.2 Share-based payments (1.2) Reserves transfer options (6.9) Reserves transfer warrants (1.0) As at 31 December Remeasurement of warrants 2.1 Share-based payments (0.8) Reserves transfer warrants (0.1) Deferred taxation on temporary differences 2.5 As at 31 December (d) Fair value reserves Balances held in fair value reserves relate to fair value movements in the year on available for sale investments. As at 1 January 14.5 Fair value movement on available for sale investments (26.5) Deferred taxation on available for sale investments 0.8 As at 31 December (11.2) Loss on available for sale investments (24.6) Reclassification of the previous loss on the available for sale investments 39.6 As at 31 December Non-controlling interest 10% holding of African Railway and Port Services (SL) Limited by the Government of Sierra Leone As at 31 December the Group recognised a non-controlling equity interest for $136.9m (: $135.8m) in the consolidated balance sheet. This interest relates to the 10% holding that the Government of Sierra Leone has in the subsidiary, African Railway and Port Services (SL) Limited ( ARPS ). This amount is based on the net assets of ARPS as at the balance sheet date. During the year $1.1m profit was attributable to non-controlling interest (: $3.9m loss). 22. Share-based payments Equity-settled transactions The net share-based income for the year is $0.8m (: $1.2m). This comprises $4.0m (: $13.0m) share-based payment expense, which is offset by a forfeiture of $4.8m (: $10.4m) and a lapse of $nil (: $3.8m). A transfer of $0.1m (: $7.9m) was made from the equity reserve to the share premium account during the year. a) Options During the year, the Company undertook a review to ensure that employee options provide an appropriate incentive and reward on a consistent basis to all share option holders. As part of this review, it was agreed that a total of 7,620,000 options would be cancelled and regranted with an exercise price of 2.09 per share and subject to a new vesting period and performance condition. The Group has issued equity settled share options under a share option scheme adopted by the Group on 5 November Movements in share options over $0.01 common shares in the Company were as follows:

77 Share-based payments continued Number of options Weighted average exercise price Number of options Weighted average exercise price As at 1 January 16,471, p 16,371, p Options granted in the year 9,396, p 5,433, p Options exercised in the year (41,666) 50.0p (2,030,306) 83.3p Options lapsed in the year (5,876,334) 357.6p (1,600,000) 123.0p Options forfeited in the year (55,333) 406.7p (1,703,336) 422.5p As at 31 December 19,894, p 16,471, p 9,469,999 (: 11,114,396) options were exercisable at year end. Volatility was determined using the historic fluctuations in the Company s share price. The fair value of options granted during the year was estimated using the Black-Scholes pricing model with the following significant assumptions: Expected life (years) Risk-free interest rate 0.50% 1.30% 0.30% 0.09% Volatility 40% 40% Weighted average fair value per option $0.64 $3.12 Weighted average exercise price $3.53 $4.85 Weighted average share price at grant date $3.27 $4.75 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Key statistics regarding all options held during the year were as follows: Weighted average remaining life (days) at end of period 1, Range of exercise price at end of period $0.71 $9.22 $0.81 $9.34 The below table shows the share options outstanding at 31 December by exercise price: Exercise price range $0.00 $1.99 6,894,148 6,230,001 $2.00 $ ,059,190 6,193,333 $4.00 $5.99 1,441,000 3,866,671 $6.00 $7.99 $8.00 $ , ,666 19,894,338 16,471,671 Subject to the rules of the Share Option Plan and the requirements noted below, each of the outstanding options is exercisable based on various targets in relation to performance of the Group including: 10% share price growth by one year s vesting date, if failed 20% growth by two years vesting date, if failed 30% growth by three years vesting date one-third of the shares under option following the first anniversary of the date of grant; a further one-third of the shares under option following the second anniversary of the date of grant; the final one-third of the shares under option following the third anniversary of the date of grant; provided that the option holder remains a Director or employee of the Group, or if the option holder s employment is terminated, within ninety days of the termination. Subject to the rules of the Share Option Plan each of the outstanding options is exercisable when the Company s share price has traded at or above the exercise price for 14 consecutive trading days.

78 76 Notes to the financial statements continued For the year ended 31 December 22. Share-based payments continued b) Warrants Movements in equity settled warrants over $0.01 common shares in the Company in the year were as follows: Number of options Weighted average exercise price Weighted average exercise price As at 1 January 15,677, p 14,192, p Warrants granted in the year 1,985, p Warrants exercised in the year (225,000) 171.1p (500,000) 272.5p As at 31 December 15,452, p 15,677, p The exercise price of warrants over 1,985,000 shares was amended on 11 October from 5.15 to The amendment to the exercise price of these warrants was accounted for as a modification and an additional charge of $2.1m was recognised during the period based on the incremental fair value of the warrants at the date of modification. In, the fair value of warrants issued were valued at $10.2m. c) Performance shares Movements in performance equity settled shares in the Company in the year were as follows: Number of shares Weighted average price Weighted average price As at 1 January 750, p 3,250, p Shares granted in the year Shares forfeited in the year (2,000,000) 440.6p Shares issued in the year (250,000) 452.2p Shares lapsed in the year (500,000) 5.5p Shares cancelled in the year As at 31 December 500, p 750, p These performance shares represent $nil exercise cost options. There were no exercises in (: nil). Performance shares are fair valued based on the share price on the date of grant. The Group has entered into agreements to award senior executives with shares in the Company based on certain performance conditions being met. These conditions, including modifications, include the following: Completion of Phase II expansion project funding (as modified). The achievement of various iron ore production targets.

79 Loans and borrowings Effective interest rate % Date of initial recording of effective interest 31 December 31 December Maturity Non-current loans and borrowings Unsecured Convertible bond 12.62% 10 February 10 February Secured Pre-export finance facility 8.35% 5 April 5 April Equipment financing facility % 29 September June Equipment financing facility % 23 November 30 June Other asset financing 21.38% 25 July October Current loans and borrowings Unsecured Convertible bond 12.62% 10 February 9 February SISG shareholder loan 8.35% 9 September 31 December Secured Cost overrun facility 10.70% 3 November February Pre-export finance facility 8.35% 5 April 5 April Equipment financing facility % 29 September June Equipment financing facility % 23 November 30 June Other asset financing 21.38% 25 July October Total loans and borrowings STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS All borrowings are denominated in $. Convertible bond The Company issued $350.0m of convertible bonds in, subsequently upsized to $400.0m with China Railway Materials Commercial Corporation ( CRM ) subscribing a further $50.0m. The principal terms of the bond are as follows: Five year term. A coupon rate of 8.5% including the equity component and issue fees. Coupon payable semi-annually in arrears. Convertible into fully paid ordinary shares of the Company. Conversion price is $ The Group has the option to call the bonds at 110% after 9 February In addition, the Group has the right to redeem the bonds if at any time the aggregate principal amount of the bonds outstanding is equal to or less than 15% of the aggregate principal amount of the bonds initially issued. The bonds will be redeemed at par at maturity on 9 February 2017, unless converted or previously redeemed. The fair value of the equity component was recorded as $52.9m at settlement on 9 February. Transaction fees of $10.6m were recorded against the bond liability at the transaction date. Borrowing costs of $44.9m at the effective interest rate have been expensed in the year and interest of $34.0m has been paid. The nominal value of the convertible bond as at 31 December was $400.0m. Pre-export finance facility On 5 April a $250.0m pre-export finance facility was entered into by Tonkolili Iron Ore (SL) Limited and African Railway and Port Services (SL) Limited, the principal operating companies within the Group. As at 31 December, the facility was fully drawn with a nominal value of $250.0m. The principal terms of the facility are as follows: An interest rate of LIBOR plus 5.5%. Interest is payable monthly on the last day of the month. Equal monthly repayments commencing on 31 March 2014.

80 78 Notes to the financial statements continued For the year ended 31 December 23. Loans and borrowings continued Interest of $8.9m has been paid in the year. Transaction fees of $8.7m were incurred against the loan on inception and borrowing costs of $10.2m at the effective interest rate have been expensed. The Group has granted security over the cash flows from a third party sales contract. On 25 March, a bridge financing facility of $140.0m was entered into prior to the pre-export finance facility. The interest rate on the bridge financing facility was LIBOR plus 7.5% and was subsequently replaced by the pre-export finance facility on 5 April. Equipment finance facility 1 A facility of $92.5m to fund the purchase of equipment was signed in September 2011, and was subsequently increased to $96.5m in March. A total of $96.0m has been drawn down from this facility. The principal terms of the facility are as follows: An interest rate of LIBOR Interest is payable quarterly on the last day of the quarter. Repayments are payable quarterly until the date of maturity. As at 31 December, the nominal value of the facility was $70.5m (: $87.6m) corresponding to the drawn down balance less repayments of $17.0m in the year (: $8.5m). Borrowing costs of $5.5m have been expensed and interest of $4.9m has been paid during the year. As at 31 December the Group was in breach of the gearing ratio financial covenant and as such the loan was disclosed as current. The Group negotiated waivers for the covenant breach in April. The Group has granted security over certain items of property, plant and equipment financed by this facility. Equipment finance facility 2 A facility of $92.0m to fund the purchase of equipment was signed in November. A total of $74.9m had been drawn down from this facility as at 31 December, including $16.1m during the year. The principal terms of the facility are as follows: An interest rate of LIBOR + 6.0%. Interest is payable quarterly on the last day of the quarter. Repayments are payable quarterly until the date of maturity. As at 31 December, the nominal value of the facility was $64.8m (: $58.8m) corresponding to the drawn down balance less repayments of $10.1m during the year. Borrowing costs of $5.1m have been expensed and interest of $4.7m has been paid during the year. As at 31 December the Group was in breach of the gearing ratio financial covenant and as such the loan was disclosed as current. The Group negotiated waivers for the covenant breach in June. The Group has granted security over certain items of property, plant and equipment financed by this facility. Other asset financing Other asset financing relates to borrowings for head office fixtures and fittings. There were repayments of $0.3m during the year (: $0.3m). The Group has granted security over certain items of property, plant and equipment financed by this facility. SISG shareholder loan On 9 September the Group entered into an agreement to borrow $56.3m from SISG in the form of a shareholder loan. The loan was entered into by Tonkolili Iron Ore (SL) Limited. The principal terms of the facility are as follows: An interest rate of 1.0% in, which increases to 2.0% throughout Interest is payable at the final maturity date. Repayment of the principal is due at the final maturity date. On inception of this loan a gain of $4.4m was recorded due to a substantially lower rate of interest compared to a similar facility in the market. This gain is offset by borrowing costs of $1.3m, which have been expensed at the effective interest rate stated above during the year. The nominal value of $56.3m was fully drawn down at 31 December.

81 Loans and borrowings continued Cost overrun facility This facility was arranged in African Minerals Finance Limited to cover additional expenses arising from the construction phase of the Tonkolili iron ore project. The facility was fully drawn in 2011, and was subsequently restructured with amended terms on 5 April. The repayment date was extended to 30 September, at which time the margin would increase incrementally to a cap of 11.0% in 2014 if not paid by this date. The principal updated terms of the facility are as follows: An interest rate of LIBOR + 9.7% as at 31 December (margin ranged from 7.5% to 9.7% during the year). Interest is payable quarterly on last day of the quarter. The nominal balance of $37.5m is repayable in full on maturity. Interest of $7.8m has been paid during the year. Borrowing costs of $8.5m at the effective interest rate have been expensed in the year. The nominal amount at 31 December was $37.5m, which corresponds to the $100.0m drawn down balance, less repayments of $42.5m in the year (: $20.0m). As at 31 December, the facility was in breach of its gearing ratio and minimum production financial covenants. The Group negotiated waivers for the covenant breach in April. Warrants costs of $2.1m relate to a modification of the exercise price during the year for warrants issued in relating to this facility (please refer to Note 22 for further details). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The Group has granted security over the s equity share in Tonkolili Iron Ore (SL) Limited, African Railway and Port Services (SL) Limited and African Power (SL) Limited, as well as assets held in the head office subsidiaries. $21.1m loss on derecognition of borrowings On 9 February the Group announced that it had repaid the $417.7m secured loan facility prior to the due date. A $21.1m loss on derecognition of borrowings was recognised. In, finance costs were capitalised to assets under construction. 24. Trade and other payables Trade payables Accruals Employment tax payable Other payables Trade payables are non-interest bearing and are normally settled on 30-day terms. Accruals recognised are based on work performed but are before final settlement and invoicing. Other payables include a balance due to Global Iron Ore Corporation for $23.6m (: $30.0m) and a transaction cost payable of $22.5m relating to the investment made by SISG in.

82 80 Notes to the financial statements continued For the year ended 31 December 25. Non-controlling interest put option and deferred income Deferred income SISG non-controlling interest As at 30 March ,500.0 Unwinding of time value of money Release of deferred income (7.8) (7.8) Gain on revaluation of put option (288.4) (288.4) As at 31 December ,243.3 Unwinding of time value of money Release of deferred income (32.5) (32.5) Other deferred income Gain on revaluation of put option (169.8) (169.8) As at 31 December ,129.9 Total Comprising: Non-current Current ,129.9 Non-current Current ,243.3 On 30 March, SISG completed a $1.5bn acquisition of a 25% shareholding in the mine, rail and port, and power subsidiaries comprising the Tonkolili iron ore project, for a cash consideration of $1.5bn. The proceeds of $1.5bn were allocated to deferred income of $505.6m and the non-controlling interest put option of $994.4m based on the fair values as determined as at 30 March. The key assumptions in fair valuing the deferred income and the non-controlling interest put option are described below. Deferred income A discounted offtake agreement was signed in for the purchase of iron ore with discounts ranging from 0% to 15%, depending on the benchmark FOB iron ore price, specifically: volumes of 2.0 Mtpa of Phase I production, increasing to 10 Mtpa following completion of Phase II. In March, the Group entered into a revised offtake agreement with SISG, which increased the contracted iron ore to be purchased from 2.0 Mtpa to 4.8 Mtpa. The offtake agreement was subsequently revised again in December from 4.8 Mtpa to 6.5 Mtpa, up to a project capacity of 25 Mtpa; to 7 Mtpa when project capacity is at 25 Mtpa; and 7 Mtpa plus 3/10 of the capacity in excess of 25 Mtpa, up to a maximum of 10 Mtpa at a capacity of 35Mtpa or more. The updated offtake agreement has an effective date of 1 January 2014, with the same discount range as the previous agreement. The amount recognised at the balance sheet date represents the present value of the iron ore offtake discount that SISG will receive under the agreement. The discount rate used in the valuation is 12.5%, based on the Group s cost of capital. Volume and iron ore prices are based on the Directors best estimate. This amount is released to the consolidated income statement as SISG takes delivery of its offtake volumes and revenue is recognised by the Group. In $32.5m of deferred income has been recognised in revenues (in $7.8m was credited to assets under construction). $68.9m (: $39.5m) has been treated as an interest expense being the unwinding of the discount of the provision. The interest expense reflects the passage of time recognised as a borrowing cost at the Group s cost of capital (12.5%). The net of these two variables comprises the movement on deferred income of $36.4m (: $31.7m). The current portion of $21.8m (: $30.9m) relating to this offtake agreement reflects the Group s best estimate of the discount attributable to the benchmark FOB iron ore price and deliveries to SISG in 2014 of 6.5Mt. Other deferred income relates to $20.0m received by the Group in December from a customer, unrelated to SISG. This deferred income will be realised as revenue in 2014 and is therefore recognised as current. Non-controlling interest put option A put option exists in the agreement whereby SISG can sell back their 25% interest in the project companies (as mentioned above) at fair value, in the unlikely event that Frank Timis (Executive Chairman) resigns voluntarily from the Board.

83 Non-controlling interest put option and deferred income continued The liability recognised is the Directors best estimate of the amount of the fair value that would be payable to SISG in the unlikely event Frank Timis leaves the Group and SISG exercises its option to sell back its interest. The put option was valued at inception and is revalued at each reporting period to fair value using an enterprise value model. The fair value calculation has key assumptions that include the utilisation of the quoted share price in estimating the market capitalisation of the mine, rail and port and power subsidiaries and an estimated significant influence premium component to reflect SISG s 25% shareholding in the mine, rail and port, and power subsidiaries. As at 31 December, the put option valuation utilises an share price of $3.15 (: $4.46) and an estimated significant influence component of $48.8m (: $64.2m). The put option was valued at 31 December at $536.2m (: $706.0m). The fair value gain on the put option from 1 January to 31 December is $169.8m and has been recognised through the consolidated income statement (: gain of $288.4m was recognised, being the movement between 30 March and 31 December ). 26. Provisions Restoration and decommissioning provision SISG warranty provisions Other provisions As at 1 January Arising during the year Reversal of unused amounts (0.4) (0.4) As at 31 December Arising during the year Unwinding of discount on provision Settlement (51.1) (51.1) As at 31 December Comprising: Non-current Current Non-current Current Total STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Restoration and decommissioning provision During, the Group recognised a mine restoration and decommissioning provision. The provision represents the discounted values of the estimated costs to decommission and reclaim the mine site at the date of depletion of the deposits. Provision calculations assume a discount rate of 10% and inflation of 6%. The liability becomes payable at the end of the useful life of the mine, being the renewal term of the mining lease. Uncertainties in estimating these costs include decommissioning and reclamation alternatives. SISG warranty provisions In, the SISG warranty provisions that were provided for in were settled. A warranty existed within the agreement with SISG which stipulated that the Group guaranteed to produce and sell at least 10Mt in. The Group delivered sales of 4.3Mt in, which resulted in a breach of the warranty. The warranty provision of $47.4m represented the Directors best current estimate of the 5.7Mt shortfall of the 10Mt warranty for. Assumptions used to calculate the provision were based on forecast sales and associated charges for the shortfall in delivery. The remaining $3.7m provision relates to non-fulfilment of 2Mt of deliveries to SISG as specified in the SISG offtake contract guarantee. The Group delivered 1.2Mt in, hence resulting in a breach for 0.8Mt. Other provisions Other provisions as at 31 December include $43.2m (: $6.2m) for legal disputes, $5.6m (: $5.0m) for contractor claims, $3.4m (: $1.5m) for Sierra Leone end of service benefit provision and $14.8m for onerous sales contracts (: $nil). Legal disputes and contractor claims are in respect of litigations and claims against the Group typically arising from contractual interpretation disputes. Provisions for legal disputes and contractor claims are based on valuations from expert legal advice. The provision for onerous offtake contracts include compensation charges for an inability to fulfil several offtake sales contracts. The provision is determined by calculating non-fulfilment of sales contracts. The end of service benefit provision relates to employees based in Sierra Leone who have been employed for longer than five years. The principal assumptions for the calculation include future salary increment, discount rate and the average time of service for these employees.

84 82 Notes to the financial statements continued For the year ended 31 December 27. Commitments and contingencies Contingent liabilities A third party has filed a claim against the Group for financial adviser s fees amounting to approximately $133.0m plus interest and costs in relation to fund raisings and transactions in prior years. The case was heard by the Commercial Court in London in March and April 2014 and judgement was issued in June 2014 in favour of the claimant on certain aspects of the claim. The Group was granted leave to appeal. The Directors view (based on legal advice) is that there are reasonable prospects of success on appeal. In light of the recognition criteria of IFRS, the Group has recognised a provision for the current judgement, including interest and estimated legal costs of the other party (refer note 26), but no potential benefit of success relating to any appeal has been recognised. There is a risk that the claimant may appeal on some parts of the claim which were not found in their favour. The maximum exposure of this risk is $63.0m plus interest and costs. The claimant was refused leave to appeal but may seek this from the Court of Appeal. If granted the Directors believe there are good prospects of successfully defending such an appeal as supported by legal advice and the initial judgement. There is therefore a risk that further losses may accrue to the Group in excess of the provision recognised as at 31 December. The Group has conducted its operations in the ordinary course of business in accordance with its understanding of applicable tax legislation in the countries where the Group has operations. Sierra Leone tax legislation and custom regulations continue to evolve. Legislation and regulations are not always clearly written and are subject to varying interpretations and inconsistent enforcement by the tax authorities and other Governmental bodies. Instances of inconsistent interpretations are not unusual. The uncertainty of application of UK and Sierra Leone transfer pricing legislation and the continued evolution of Sierra Leone s tax laws, including those affecting cross-border transactions, create a risk of additional tax payments having to be made by the Group, which could have a material effect on the Group s financial position and performance. Operating leases The Group has entered into two mining licences with the Sierra Leone Government and a lease for the port and rail operations. The lives of the mining licences are 25 years, with renewal options after 15 years, and the port and rail lease is 99 years. The Group may, at least one year prior to the expiration of the mining licence, apply to the Government of Sierra Leone for a renewal for a further period of 15 years effective from the date of expiration of the previous licence. The Group also has a five year operating lease contract for a locomotive fleet for the port and rail operations. A call option exists for the Group to obtain ownership of the assets at fair value of the assets throughout the lease term. Where the Group does not exercise the call option, the lessor has a put option over a maximum of 16 of the cars, which can be exercised six months prior to the expiration of the lease. Future minimum payments under the operating leases as at 31 December are as follows: Within one year After one year but not more than five years More than five years At 31 December, the Group had commitments of $42.5m (: $46.1m) including $9.3m (: $43.7m) relating to port and rail infrastructure and $33.2m (: $2.7m) in relation to the mine. 28. Operating cash flow before working capital changes (Loss)/profit before taxation from operations (94.0) 4.3 Adjustments to add/(deduct) non-cash items: Finance costs 73.2 Finance income (0.1) (2.2) Depreciation of property, plant and equipment Amortisation of intangible assets Derecognition of assets under construction 41.5 Loss on fuel misappropriation 18.0 Impairment of exploration expenditure 7.6 Provision for doubtful debts 7.4 Impairment of property, plant and equipment 25.1 Impairment of available for sale investments 39.6 Unrealised foreign exchange loss Share-based payments (0.8) 5.1 Imputed cost of deferred income Release of deferred income (32.5) Fair value gain on financial instruments (169.8) (288.4) Penalties for SISG warranty breach 46.3 Total adjustments to add/(deduct) non-cash items (184.8) Operating cashflow before working capital changes 91.8 (180.5)

85 Financial instruments and financial risk management objectives Set out below is a comparison by class of the fair value of the Group s financial instruments that are carried in the financial statements. a) Financial measurements Carrying value Carrying value Fair value Fair value Financial assets Loans and receivables Trade and other receivables Deposit Available for sale financial assets Available for sale investments Cash and cash equivalents Financial liabilities Amortised cost Interest-bearing borrowings unquoted Interest-bearing borrowings quoted Trade and other payables , Financial liabilities at fair value through profit or loss Non-controlling interest put option , ,634.6 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 1 The carrying amount of these short-term receivables and payables is a reasonable approximation of their fair value. The fair value of the loans and borrowings is calculated using discounted cash flows at the implicit rate of return on the debt component of the facility. Fair value of the quoted interest-bearing borrowings is based on price quotations at the reporting date. Fair values of the Group s interest-bearing borrowings are determined by using the effective discounted cash flow method. The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Refer to Note 2 for details. (b) Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data. The Group held the following financial instruments carried at fair value in the consolidated balance sheet: 31 December Assets measured at fair value Available for sale financial investments: Equity shares Liabilities measured at fair value Non-controlling interest put option December Assets measured at fair value Available for sale financial investments: Equity shares Liabilities measured at fair value Non-controlling interest put option Level 1 Level 1 Level 2 Level 2 Level 3 Level 3

86 84 Notes to the financial statements continued For the year ended 31 December 29. Financial instruments and financial risk management objectives continued A significant unobservable valuation input is the estimated significant influence premium component to reflect SISG s 25% shareholding in the mine, railway and port, and power subsidiaries. Significant increase/(decrease) in the significant influence premium component would result in lower/(higher) fair value of the non-controlling interest put option. (c) Financial risk management objectives and policies The Group s activities expose it to a variety of financial risks. The Group s Board provides certain specific guidance in managing such risks, particularly as relates to credit and liquidity risk. Any form of borrowings requires approval from the Board and the Group does not currently use any derivative financial instruments to manage its financial risks. The key financial risks and the Group s major exposures are as follows: Credit risk The maximum exposure to credit risk is represented by the carrying amount of the financial assets. In relation to cash and cash equivalents, the Group limits its credit risk with regards to bank deposits by only dealing with reputable banks. In relation to trade receivables, the Group s credit risk is managed by only trading with established customers, some of whom are shareholders, and use of letters of credit. Trade debtors Gross Provision for doubtful debt Gross Provision for doubtful debt Not past due days past due days past due More than 60 days past due 6.6 (6.6) (6.6) 58.8 Foreign currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. In respect of monetary assets and liabilities held in currencies other than US dollars, the Group ensures that net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances. Foreign exchange differences on retranslation of such assets and liabilities are recorded in the consolidated income statement. The tables below indicate the currencies to which the Group had significant exposure at 31 December on its monetary assets and liabilities. The analysis calculates the effect of a reasonably possible movement of the currency rate against the US dollar, with all other variables held constant on the consolidated income statement. A positive amount in the table reflects a potential net increase in the consolidated income statement. (a) Cash and cash equivalents: Change in currency rate in % Effect on pre-tax profit or loss Change in currency rate in % Effect on pre-tax profit or loss British pounds 0.7 ± ± Canadian dollars 0.1 ±10 ±10 Chinese renminbi 0.2 ±10 ±10 Sierra Leone leones 0.5 ± ± (b) Available for sale investments: Change in fair value Equity movement Change in fair value Equity movement Listed securities: Equity securities Australia 14.0 ± ± Equity securities UK 2.9 ± ± Total

87 Financial instruments and financial risk management objectives continued Equity price risk The effect on equity (as a result of a change in the fair value of quoted equity shares held at 31 December) due to a reasonably possible change in equity indices, with all other variables held constant, is as follows: Change in equity price % Effect on equity Effect on pre-tax profit or loss Change in equity price % Effect on equity Effect on pre-tax profit or loss Quoted investments ± ± Non-controlling interest put option ± ± Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Figures in the table below represent the gross, contractual, undiscounted amount payable in relation to the financial liabilities. The Group monitors its risk to a shortage of funds using a combination of cash flow forecasts, budgeting and monitoring of operational performance. The Group s objective is to maintain a balance between continuity of funding and flexibility through the use of various interest-bearing loans and borrowings, operating leases and share issues, and retaining sufficient liquid resources to meet the Group s working capital requirements. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS On demand Less than three months Three to twelve months One to five years Accruals Trade and other payables Provisions Loans and borrowings ,038.3 Non-controlling interest put option As at 31 December ,829.1 Accruals Trade and other payables Provisions Loans and borrowings Non-controlling interest put option As at 31 December ,960.1 Total months The Group continuously monitors the liquidity risk related to the non-controlling interest put option. The Group considers the event that Frank Timis voluntarily leaves the Board unlikely. The main purpose of the interest-bearing borrowings has been to raise finance for the Group s capital expenditure programme. Trade and other payables are used to manage short-term cash flow and working capital requirements. Interest rate risk Interest rate risk arises when the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Directors consider there to be minimal interest rate risk from fluctuations in market interest rates since the margin element of the initial interest rates on the Group s loans and borrowings are fixed. There is a variable component in relation to the LIBOR inherent in certain facilities, which the Directors consider immaterial.

88 86 Notes to the financial statements continued For the year ended 31 December 29. Financial instruments and financial risk management objectives continued Commodity price risk As the Group is currently a single commodity producer, fluctuations in iron ore prices as well as in demand could have a material positive or negative impact upon the financial result of the Group and the development of its projects. The Directors manage the risk of fluctuations in price by ensuring that operations are efficient and low-cost. The Group has an established customer base and manages demand by entering into offtake contracts, fully committing sales for future periods. Change in FOB price % Effect on revenue Change in FOB price % Trade debtors ± ±10 Effect on revenue Capital management The key objectives of the Group s capital management policy are to safeguard and support the business as a going concern through the commodity cycle, to maximise returns to shareholders and benefits to other stakeholders and to maintain an optimal capital structure in order to reduce the Group s cost of capital. At 31 December, total capital employed (which comprises total equity, non-controlling interest put option, non-current deferred income and borrowings) of the Group amounted to $2,641.4m (31 December : $2,591.6m). Total capital employed is the measure of capital that is used by the Directors in managing capital. The Group does not have a target debt/equity ratio, but monitors net debt to ensure a sustainable capital structure through the commodity cycle. Included with the Group s debt facilities are financial covenants for which compliance certificates are produced. All financial covenants were complied with up to the date of approval of the financial statements. Total capital employed by the Group as at 31 December consisted of: Total equity ,051.5 Non-current loans and borrowings (Note 23) Non-current deferred income Non-controlling interest put option , ,591.6 The Group is not subject to any externally imposed capital requirements.

89 Related party transactions Revenue/ cost recharge Accounts receivable Purchases/ interest expense Commissions/ warranty breach costs Accounts payable Deferred income Non-controlling interest put option Borrowings Shareholders: China Railway Materials Commercial Corporation Shandong Iron and Steel Group Companies in which Directors hold an interest: African Petroleum Corporation Limited International Petroleum Limited Pan Dundee Corporation 0.5 Dundee Resources Limited Dundee Securities Limited 2.1 Corona Gold Corporation 0.1 Others: Global Iron Ore Corporation STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Shareholders China Railway Materials Commercial Corporation is a shareholder in the Company. Transactions relate to iron ore sales and materials purchased for railways for $43.1m (: $78.1m). Purchases also include an annual marketing commission, and interest accrued on the borrowings related to the subscription of convertible bonds (see Note 23) for $6.4m (: $3.9m). Following its $1.5bn cash acquisition of a 25% shareholding in the mine, rail and port and power subsidiaries comprising the Tonkolili iron ore project, Shandong Iron and Steel Group ( SISG ) became a related party in. Transactions relate to the sale of iron ore through offtake contracts, warranty breach costs (see Note 8), interest accrued on the SISG shareholder loan (see Note 23), deferred income on the offtake agreement and the non-controlling interest put option (see Note 25). Companies in which Directors hold an interest African Petroleum Corporation Limited is a company of which Frank Timis is a Director and has an ownership interest of 39.5%. Transactions relate to provision of jet services by African Petroleum Corporation Limited to AML and recharges by AML to African Petroleum for shared London office rental and related expenses. International Petroleum Limited is a company of which Frank Timis is a Director and in which he has an ownership interest of 37.75%. Transactions relate to recharges by AML to International Petroleum Limited for shared London office rental and related expenses. The Group deems the balance due from International Petroleum Limited of $0.8m impaired at year end.

90 88 Notes to the financial statements continued For the year ended 31 December 30. Related party transactions continued Pan is a company of which Frank Timis is a majority shareholder with an ownership interest of 65%. Transactions relate to recharges by AML to Pan for the provision of certain AML staff on Pan projects, and vice versa, and for shared office rental and related expenses. Dundee Corporation is a Corporation of which Murray John is a Named Executive Officer. Murray John is also a Director of African Minerals Limited. Purchases in include interest payable paid on the secured loan facility which was repaid in. Dundee Resources Limited is a wholly owned subsidiary of Dundee Corporation, of which Murray John is a Named Executive Officer. Borrowings relate to the subscription of convertible bonds. Purchases and accounts payable include interest payable accrued on the borrowings related to the subscription of convertible bonds (see Note 23). Dundee Securities Limited is a wholly owned subsidiary of Dundee Corporation, of which Murray John is a Named Executive Officer. Transactions in relate to placing agent commissions for the issue of convertible bonds (see Note 23). Corona Gold Corporation is a firm of which Murray John is a Director and Chief Executive Officer. Purchases include interest payable paid on the secured loan facility which was repaid in. Others Global Iron Ore Corporation is a company in which Dermot Coughlan s son holds a senior management position. Dermot Coughlan is a Director of. Interest accrued in relates to the interest recognised on the payment of agency commission fees from. Sales transactions in relate to iron ore sales. Commissions in relate to agency commission fees associated with iron ore sales contracts, and the cancellation thereof, together with the provision of logistics services. Directors Miguel Perry provided $0.5m as part of the $417.7m secured loan facility which was repaid in February, for which he received $5,000 interest during. There were no transactions in. Miguel Perry was the Chief Financial Officer and a Director of African Minerals Limited until 30 September. All the above transactions have been approved by the Board and have been carried out on an arm s length basis. 31. Reporting jurisdictions The Company is a reporting issuer in certain Canadian jurisdictions. However, the Company is a designated foreign issuer as defined in Canadian National Instrument and is subject to foreign regulatory requirements, including those of the AIM market of the London Stock Exchange. As such, the Company is exempt from certain requirements otherwise imposed on reporting issuers in Canada. In particular, Financial Statements of the Company may be prepared under International Financial Reporting Standards or accounting principles that meet the non-canadian disclosure requirements to which the Company is subject. 32. Subsidiaries At 31 December the Group held ordinary share capital of the following significant subsidiaries: Name Country of incorporation Principal activity African Minerals Ltd. England and Wales Holding company 100% 100% African Minerals (SL) Ltd. Sierra Leone Service company 100% 100% African Minerals (UK) Ltd. England and Wales Service company 100% 100% African Minerals Engineering Ltd. England and Wales Service company 100% 100% African Minerals Finance Ltd. Guernsey Group financing company 100% 100% African Minerals Trading Ltd. England and Wales Sale of iron ore 100% 100% African Power (SL) Ltd. Sierra Leone Power company 75% 75% African Railway and Port Services (SL) Ltd. Sierra Leone Infrastructure company 65% 65% Sierra Leone Gold (SL) Ltd. Sierra Leone Gold exploration 100% 100% TIO Trading Ltd. England and Wales Sale of iron ore 75% Tonkolili Iron Ore (SL) Ltd. Sierra Leone Iron ore production 75% 75% Holding Holding 33. Subsequent events Fundraising arrangements In February 2014, the cost overrun facility was refinanced with a different lender on more favourable terms and with a maturity of June The Group has increased the size of this facility to $55.0m, of which $37.5m has been drawn down. Adviser s fees claim In June 2014, the Commercial Court in London issued a judgement in respect of a claim against the Group for financial adviser s fees relating to fund raisings and transactions in prior years. The judgement was in favour of the claimant on certain aspects of the claim, for which a provision has been recognised as at 31 December, including interest and estimated legal costs of the other party (refer note 26).

91 Advisors and Company information Auditors Ernst & Young LLP 1 More London Place London SE1 2AF United Kingdom Nominated Advisor Jefferies Hoare Govett Vintners Place 68 Upper Thames Street London EC4V 3BJ United Kingdom PR Advisor Tavistock 131 Finsbury Pavement London EC2A 1NT Company Secretary Marlies Smith M Q Services Ltd. Victoria Place, 31 Victoria Street, Hamilton HM 10 Bermuda Registered Office Victoria Place, 31 Victoria Street, Hamilton HM 10 Bermuda Company Number UK Solicitors Cleary Gottlieb Steen & Hamilton LLP City Place House, 55 Basinghall Street London EC2V 5EH United Kingdom Canadian Solicitors Blake Cassels and Graydon LLP 199 Bay Street Suite 2800, Commerce Court West Toronto ON M5L 1A9 Canada Registrars Computershare Trust Company of Canada 600, 530 8th Ave SW Calgary, AB T2P 3S8 Canada

92 London Office Stratton House 5 Stratton Street London W1J 8LA Tel: +44 (0) Registered Office Victoria Place 31 Victoria Street Hamilton HM10 Bermuda